Natural gas closes at four-week high
Oil closes just above $32; IEA ups demand growth target
By Myra P. Saefong, CBS.MarketWatch.com
Last Update: 3:37 PM ET Aug. 11, 2003
SAN FRANCISCO (CBS.MW) - Natural gas futures closed at their highest level in four weeks Monday, with traders still concerned that inventories might not be able to meet demand this winter.
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Meanwhile, crude prices closed just above $32 a barrel amid uncertainty over OPEC's next move on oil production and a higher demand growth estimate from the International Energy Agency.
Natural gas for September delivery rose by 9.2 cents, or 1.8 percent, to close at $5.129 per million British thermal units on the New York Mercantile Exchange. The contract hasn't closed above $5.12 since July 14.
"If August gets hot and we go into cold winter ... [prices] could get back up towards $6, maybe even $10 later in the winter," said Phil Flynn, a senior analyst at Alaron Trading in Chicago.
But other analysts said the strength in natural gas probably won't last much longer.
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 it was still 23 billion cubic feet more than the five-year average refill, said Tim Evans, a senior analyst at IFR Pegasus.
Even if demand for natural gas climbs as the market expects from users switching back to the fuel from oil, this Thursday's inventory report will likely show a 70 billion to 75 billion cubic foot climb in stocks for the week ended August 8, said Evans. That's still "comfortably" above the 51 billion average five-year comparison, he said.
Flynn pointed out, however, that the five-year average is "deceptively low" and a "false security," because four out of the five past winters have been "some of the warmest on record."
At some point, "if we get seasonal weather, we'll have a more than seasonal rally," he said.
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 last week.
The market generally needs about 3 trillion cubic feet of natural gas in storage to have enough for the winter season, analysts say. Read more about the outlook for natural gas.
Crude slips back
Crude futures closed lower Monday, pressured by continued uncertainty over Iraqi production as well as OPEC's next move on production.
But prices remained above the $32-per-barrel level on the back of a higher demand growth estimate for the year from the International Energy Agency.
Crude for September delivery fell by 17 cents to close at $32.01 per barrel.
September unleaded gasoline fell by 1.45 cents to close at 94.05 cents a gallon. September heating oil closed at 83.54 cents a gallon, down 0.79 cent.
Iraqi crude is expected to begin flow in to the oil terminal at Ceyhan, Turkey within 2 days or less, with a possible rate flow of around 300,000 to 400,000 barrels per day, according to IFR Pegasus' Evans, who cited news reports.
The country is still facing obstacles when it comes to bringing production back up to the pre-war level of around 2.5 million barrels per day.
The 140,000 barrel-per-day Basra refinery has been forced to halt production because of a power failure, news agencies reported Monday. "Iraq's sole export terminal Min al-Bakr stopped loading oil tankers on Monday because of a lack of power at the pumping stations, apparently," said Michael Fitzpatrick, an analyst at Fimat USA.
Also, a riot protesting a fuel shortage in the city of Basra over the weekend has raised black market gasoline prices to ten times the level in Baghdad, Evans said. Read the New York Times article.
OPEC debate
Traders have also been concerned that OPEC will decide to raise its output because the basket price for its seven types of crude oils currently stands above its $22 to $28 per barrel target range.
"OPEC guidelines stipulate that it considers adjusting its production by 500,000 barrels per day if prices stray outside the band" for 20 days straight, said Fitzpatrick. The 20th day would fall on August 28, he said. The price stood at $29.22 on Friday.
OPEC Secretary-General Alvaro Silva said last week that while the price band mechanism remains in place, it won't automatically trigger a production increase.
OPEC production averaged 26.6 million barrels per day in July, up 370,000 barrels per day from June, according to a survey by Platts, the global energy information division of The McGraw-Hill Cos. (MHP: news, chart, profile).
Excluding Iraq, output averaged 25.92 million barrels per day, up 150,000 barrels per day from June and 520,000 barrels per day above the cartel's quota of 25.4 million barrels per day.
Inventories in the U.S. remain tight, but while crude stocks did climb for the week ended August 1, unleaded gasoline fell for a fourth straight week, the Energy Department reported Wednesday. See full story.
IEA ups 2003 demand target
On the upside for prices, the Paris-based International Energy Agency raised its 2003 demand growth forecast Monday by 100,000 barrels per day to 1.1 million barrels per day.
In its monthly report, the agency cited a "quicker-than-expected" recovery from the effects of the Severe Acute Respiratory Syndrome (SARS) outbreak.
Oil prices will likely "continue to be supported by low stocks, stronger economic growth, a pick-up in U.S. gasoline demand and the uncertainty over Iraqi supplies ahead of an anticipated seasonal rise in demand," the agency said.
In Monday's equities trading, oil service stocks traded higher, as reflected by action in the Philadelphia Oil Service Index. (OSX: news, chart, profile). See Energy Stocks.
In Nymex metals trading, gold for December delivery closed back above $363 an ounce ahead of the Federal Open Market Committee meeting Tuesday. See Metals Stocks.
Tracking price movements in commodities as a whole, the CRB/Bridge Index rose 0.1 percent to stand at the 237.2 level.
Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.
