Nov. 14, 2000, 10:18PM

Cold pushes natural gas to record Inventory figures due out today

By MICHAEL DAVIS Copyright 2000 Houston Chronicle

Frigid weather in the Upper Midwest that is bound for the Northeast sent natural gas prices to a record high Tuesday.

The cold weather is the dominant force in energy markets now, but other factors will be influencing prices as well.

Analysts and traders also will be taking their cues from natural gas inventory figures that will be out after the market closes today. If the figures show that gas has been withdrawn from storage -- it would be the first such drawdown of the heating season -- look for prices to keep going up.

Expectations of whether gas will be pulled from storage vary. Art Gelber, with Gelber & Associates, a Houston energy consulting firm, is expecting a modest inventory reduction.

Kyle Cooper, oil analyst with Salomon Smith Barney in Houston, is looking for natural gas inventories to be unchanged and possibly even to increase slightly.

Natural gas for delivery in December at the Henry Hub in Louisiana closed Tuesday at $6.01 per thousand cubic feet, up 31.8 cents. At this time last year, the December contract was trading for about $2.64.

Under current conditions of cold weather and tight supplies, and assuming that such weather patterns continue, natural gas could easily reach $7 per thousand cubic feet, Gelber said.

"This cold weather reversed a $1.50 decline that we had roughly 10 days ago; this market is moving up very strongly," Gelber said.

Natural gas prices are expected to remain high throughout the winter.

Steve Thumb, principal with Energy Ventures Analysis of Arlington, Va., has speculated that spot gas -- gas bought for immediate delivery rather than under a futures contract -- could trade for as high as $20 to $30 per thousand cubic feet if a major cold front strikes the Northeast.

Natural gas companies have been warning their customers for months that if the nation has a normal winter this year, as predicted, after three years of mild winters, consumers could see their natural gas bills rise by 35 to 40 percent through March.

The American Gas Association estimates current inventories of available gas at 2.75 trillion cubic feet, about 9 percent short of where they stood a year ago.

Heating oil prices also rose sharply Tuesday, another sign that the weather is the primary force driving the market. Heating oil helped move crude oil up as well, although oil storage figures out after the market closed showed inventories were up, which should dampen crude prices today.

The American Petroleum Institute said U.S. oil inventories at the end of last week were up by 2.5 million barrels. Oil inventories are about 24.7 million barrels below where they were at this time last year.

During the winter is usually the only time of the year when natural gas and heating oil tend to track each other up or down. During the rest of the year, natural gas tends to trade on its own, independent of other energy commodities.

"Heating oil and natural gas are sisters, not identical twins," Gelber said.

Heating oil on the New York Mercantile Exchange closed at $1.05 per gallon, up 3.7 cents per gallon. Light, sweet crude oil for December delivery closed at $34.87 per barrel, up 40 cents per barrel.

December Brent crude from the North Sea fell 25 cents to $32.69 per barrel.

The Organization of the Petroleum Exporting Countries did not raise its oil production quotas earlier this week at its regular fall meeting. Cartel members instead are now voicing concern that they may have to pull oil off the market after winter to keep prices from crashing when demand drops off.

U.S. Energy Secretary Bill Richardson said Tuesday that despite OPEC's decision not to raise oil production, more crude is needed in world markets. Current oil prices are too high, Richardson said, noting the Clinton administration would prefer crude to drop to the $20 to $25 range.

"We still think there's a supply problem; that the world needs more production," he told CNBC.

http://www.chron.com/cs/CDA/story.hts/business/energy/747544

-- Martin Thompson (mthom1927@aol.com), November 15, 2000