Sector Plays

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Natural gas scores 3% weekly gain
Nymex crude contract closes ends lower, but above $32

By Myra P. Saefong, CBS.MarketWatch.com
Last Update: 3:26 PM ET Aug. 8, 2003







SAN FRANCISCO (CBS.MW) -- Natural-gas futures closed lower Friday, as traders took a step back to view the commodity's supply picture, but prices scored a 3 percent gain for the week.



Meanwhile, crude prices fell back from a fresh five-month high they reached earlier in the session, to close narrowly lower. The market was clouded by demand uncertainty and news of higher oil output from a Russian producer.

Natural gas for September delivery fell by 4.5 cents to close at $5.037 per million British thermal units on the New York Mercantile Exchange.

The contract rose nearly 34 cents Thursday to close at a more than two-week high, but Friday's close represents a sizable gain over last week's close at $4.874.

The Energy Department's reported increase of 74 billion cubic feet in inventories for the week ended Aug. 1 was below some market expectations, but this doesn't lessen that it was also "significantly large on a historical basis," said John Kilduff, an analyst at Fimat USA.

A year ago, weekly supplies rose by 33 billion cubic feet.

Still, total U.S. stocks of 2.106 trillion cubic feet remain 461 billion cubic feet below the year-ago level and are 234 billion cubic feet below the five-year average, the Energy Department said Thursday.

Thursday's price climb in natural gas "highlights the vulnerability of the market to price spikes on any kind of even remotely bullish news," Kilduff told clients earlier Friday.

The market generally needs about 3 trillion cubic feet of natural gas in storage to have enough for the winter season, analysts say. From the current level, supplies will need to rise by 69 billion cubic feet per week over the next 13 weeks, Kilduff said.

He also noted that the average rise for that time period is 55 billion per week and the highest amount was 66 billion per week in the 2001 period.

"The 3 [trillion cubic feet] appears within reach, but ... the market will judge any slack in production harshly," he said.

Either way, natural gas "will be one of this year's hottest commodities to monitor when it comes to potential supply disruptions, as demand is expected to remain, at the least, steady to higher than last year," said John Person, Infinity Brokerage Services' head financial analyst.

Crude drops back

Uncertainty over demand as well as news of a sizable rise in output from a major oil producer in Russia pressured oil futures Friday.

Prices had climbed earlier in the session to a five-month high at $32.85 a barrel amid ongoing concerns over Iraq's ability to lift oil production back to prewar levels.

Crude for September delivery fell by 21 cents to close at $32.18 per barrel on Nymex. A week ago, it closed at $32.31.

September unleaded gasoline fell by 0.85 cent to 95.5 cents a gallon. September heating oil closed at 84.33 cents a gallon, down 1.12 cents.

Lukoil, Russia's second-largest oil producer, said Friday that it expects to pump 4 percent more oil this year -- that's double last year's growth rate following the company's purchase of assets in northern Russia and western Siberia, said Infinity's Person. It produced 1.47 million barrels of oil a day in January through June, he said.

The market's speculating that "the economy may not be able to sustain the growth and this could derail demand," he said, thus putting a drag on crude prices.

Also, prices are "slightly rich at this level, and traders are taking money off the table from those who are holding long positions by liquidating positions going into the weekend," Person said.

OPEC still in view

Meanwhile, OPEC's price for its basket of seven types of crude oils stood above $28 per barrel for a fifth-straight day, according to Fimat's Kilduff.

The cartel has been committed to keeping the basket price between $22 and $28 per barrel.

The price band mechanism remains in place, it won't automatically trigger a production increase, said Fimat, citing Thursday comments made by OPEC Secretary-General Alvaro Silva.

"OPEC appears quite willing to risk higher prices and the economic and demand damage they cause, [rather] than lower prices," Kilduff said.

Traders continue to assess the U.S petroleum inventory updates, wary of a hefty gain in last week's crude supplies as well as lower gasoline stockpiles.

The Energy Department reported Wednesday that the nation's crude inventories increased by 2.9 million barrels to 280.2 million barrels for the week ended Aug. 1. Separately, the American Petroleum Institute reported an increase of 1.6 million barrels to 278.1 million.