Energy Sector Natural gas soars to record level Heating oil jumps too

By Lisa Sanders, CBS.MarketWatch.com Last Update: 11:57 AM ET Dec 4, 2000 NewsWatch

NEW YORK (CBS.MW) -- Natural gas futures hit an all-time high Monday as a chilly winter outlook stoked commodities used for heating homes. January natural gas, a prime commodity used for heating particularly on the East Coast, leaped 12.57 cents, or 19 percent, to $7.930 per million British thermal units.

In a first for the commodity, the New York Mercantile Exchange halted trading for one hour as natural gas reached its "lock limit," said John Kilduff, senior vice president of energy risk management at Fimat, an arm of Societe Generale Group. The new lock-limit is now $8.13 per BTU, he said.

"It's all about a dire supply situation," Kilduff said. "We're facing frigid temperatures this week, and we're talking about a winter that's already 15 percent colder than normal on a degree basis."

Kilduff noted that the activity in natural gas follows last week's American Gas Association report, which showed a sizable draw down in storage.

"And it was well outside even the most bullish of estimates," Kilduff said. "If this keeps up -- even with a normal winter -- we won't have any storage left at the end of the winter."

Kevin Kerr, an energy analyst at Ira Epstein & Co, said the market is looking ahead to this week's AGA figures with trepidation. The only way prices will fall is if the AGA reports that only a slight draw or a build on storage.

January heating oil was also making substantial gains, adding 7.82 cents, or 8 percent, to trade at 104.90 cents a gallon.

"Heating oil is up on the back of natural gas," Kilduff said. "Industrial users have the capacity to switch from natural gas to heating oil, and that's what they're doing."

Adding to the price jump is the fear of colder weather and a supply disruption, Kerr said.

"And the extreme overselling last week is providing a buying opportunity," he said.

Crude futures popped higher Monday as traders also saw buying opportunities in petroleum.

On the New York Mercantile Exchange, January crude jumped to $32.50, a gain of 48 cents, after closing at $32.02 a barrel Friday, its lowest level since the $31.83 closing low of Nov. 8.

"Crude last week was a little oversold, and is now moving with the rest of the complex," Kerr said.

On Sunday, the Associated Press reported that Iraq, which halted exports Friday morning, said it would resume exporting its crude to honor contracts that had been signed under the United Nations-sanctioned oil-for-food deal. Saudi Arabia has agreed to cover 1.8 million barrels of Iraq exports a day, Kerr said.

Iraq had been demanding that customers pay a 50-cent per-barrel surcharge for its oil directly to an account outside of U.N. control. This would be a violation of U.N. regulations since the country has been under global sanctions after its 1990 invasion of Kuwait. Under those sanctions, payments for Iraqi oil are required to go directly into an escrow account in New York.

Early Friday, however, the Associated Press cited Iraq's official news agency as reporting that Baghdad was dropping its demand for the surcharge because it would make Iraqi oil noncompetitive.

Meanwhile, January unleaded gasoline was quiet, shedding 0.33 cent to trade at 82.10 cents a gallon.

http://cbs.marketwatch.com/news/current/sector_energy.htx?source=blq/isynd

-- Martin Thompson (mthom1927@aol.com), December 04, 2000

Answers

Dec. 4, 2000, 3:38PM

Freeze warnings send natural gas prices up

NEW YORK (Reuters) -- Warnings of a big freeze next week in the U.S. sent wholesale natural gas prices soaring into record territory again today, and the market braced for further gains as utilities continue to scramble for already-tight supplies.

"Clearly we're in an overly tight supply and demand market. How high could prices go? We could very easily see double digit ($10 per million British thermal units or higher) Henry Hub gas this winter," said Tom Ebbern, senior oil and gas analyst at TD Newcrest Capital Inc, an institutional brokerage in Calgary.

Henry Hub in Louisiana is the benchmark delivery point for pricing most U.S. natural gas.

Forecasts calling for a blast of Arctic air next week, starting in the Midwest and marching east, sent a shiver through the market early Monday, driving January wholesale prices on the New York Mercantile Exchange (NYMEX) almost 20 percent higher to a record $7.95 per million British thermal units (mmBtu).

The exchange halted trade this morning for an hour when the front month futures locked up the 75-cent limit at $7.423. The January contract finished the session up 76 cents at $7.433.

In a report issued today, Jon Davis, a widely-watched meteorologist at Salomon Smith Barney in Chicago, said he expects next weeks Arctic mass to be "extremely impressive."

"Keep in mind that we have not had an Arctic air mass this strong move into the lower 48 (states) during the past four winters. This is easily in the category of a 'Polar Pig'," Davis said, adding he had not used that term, reserved only for extremely cold weather, in several years.

Davis said he expected a moderately strong Arctic air mass to push down into the eastern half of the nation later this week, followed by "an incredibly strong" cold front over most of the U.S. next week.

Mike Palmerino at Massachusetts-based forecaster with Weather Services Corp. said the severe cold could last for two or three weeks, well into the Christmas holiday season.

The early freeze is expected to trigger above normal heating demand in all major Midwest and East Coast cities for the period.

"Obviously, the middle of December is going to be a period of exceptionally high heating demand," Davis' report said.

Heating demand in November ran about nine percent above normal, according to Davis.

Driven by concerns about low gas inventories heading into the winter heating season, a chilly November, and forecasts for another freeze next week, January gas on NYMEX has surged about 75 percent since November 1.

Wholesale gas prices are now more than triple 1999's average of about $2.30.

And more gains are expected.

Traders noted near record inventory declines in November reduced U.S. gas stocks to about 2.5 trillion cubic feet, or about 17 percent below last year, according to the latest data from the American Gas Association, a trade group.

"Storage is extremely tight, and there's no safety net for a colder- than-normal winter," TD Newcrest Capital's Ebbern said.

The autumn spike in wholesale prices is expected to lead to record heating bills for consumers this winter, which will likely be up more than 40 percent for the nearly 56 million homes, or about half the single homes in the country, that heat with gas, analysts say.

Residential gas prices from October to March are expected to average a record $8.50 per thousand cubic feet, up about 30 percent from last year's $6.61 average, according to the Energy Information Administration (EIA).

But EIA analyst Dave Costello, citing a cold November, said recently the statistical agency's winter estimate may be low, adding a revised price forecast was due out this week.

Analysts agreed even normal winter withdrawals this year will leave end-March stocks at very low levels, setting the stage for more price strength during the April-October stock building season.

http://www.chron.com/cs/CDA/story.hts/business/763185

-- Martin Thompson (mthom1927@aol.com), December 04, 2000.