Overview:

Spot prices at the Henry Hub remain low for this time of year, as prices declined 16 cents from Friday-to-Friday. The spot price rose $0.50 per MMBtu from Monday to Wednesday, and then fell almost 60 cents by Friday to trade for $1.77 at the end of the week. Concern about the final resolution of the surprising decline of the Enron Corporation appears to be contributing to the price variability on the spot market. On the NYMEX futures market the December contract closed on Wednesday at $2.316 per MMBtu, more than $1.00 below what it began trading for as the near-month contract in late October. The unseasonably warm temperatures that have dominated the weather in much of the country continued last week in the eastern portion of the country. (Temperature Map) (Temperature Deviation Map). In addition, the National Weather Service's (NWS) latest 6 to 10 day forecast is calling for a warm weather pattern to continue into early December. Because of the combination of warmer-than-normal temperatures and favorable prices, this year's refill season has continued into the 2^nd half of November with an estimated 12 Bcf added to working gas stocks during the third week of last month. The spot price of West Texas Intermediate (WTI) crude oil moved up about $0.85 per barrel on Friday and ended the week at $19.50 or about $3.36 per MMBtu.

Prices:

Spot prices over the past 2 weeks have displayed some of the widest daily price swings in several months. Some of the factors contributing to this price variability include: the continued increase in working gas stocks, weak demand resulting from the slowing of the U.S. economy, the lack of significant weather-related demand, and the decline in the prices of petroleum products. Prices at most major market locations surged in the first half of last week, then dropped sharply as the lack of demand kept the volume of natural gas available in most pipeline systems at a high level. Transco issued its first operational flow order (OFO) ever due to excessive linepack, while other major interstate transmission systems that serve the eastern parts of the country also issued warnings of possible oversupply OFOs to their customers late last week. Between Wednesday and Friday the spot price at many major Gulf Coast markets dropped by $0.60 per MMBtu or more as most markets ended the week with prices well below $2.00. However, colder temperatures in the western half of the country limited end-of-week declines in many trading locations, resulting in net price gains from the end of the prior week. Friday-to-Friday increases ranged from 12 to 55 cents per MMBtu in the Rockies and around 7 to 33 cents in the Permian and San Juan basins, with increases at Midcontinent locations slightly less. In California, prices on the PG&E system increased $0.36 to $1.90 per MMBtu, while the average price at the Southern California border climbed $0.64 to $2.19.

Futures market prices on the NYMEX have been in a general decline for almost a month. Although prices for the new near-month contract (January delivery) gained 14 cents per MMBtu on Friday to end the week at $2.701, market observers indicated that this upward movement was likely due in large part to the need for several large traders to cover the short positions they held. This shift is expected to be reversed on Monday, and even with Friday's gain, prices for all forward month contracts through October of next year remained below $3.00 per MMBtu. The contracts for the other remaining months of the current heating season (February and March) ended Friday's trading at $2.786 and $2.799, respectively. Last year at this time prices of these winter season contracts ranged between $6.673 per MMBtu for January and $6.043 for March.

Storage:

The industry continued to add to overall stock levels in the third week of November as net injections totaled 12 Bcf for the week ended Friday, November 23, according to the latest American Gas Association (AGA) weekly estimate. Last year net withdrawals during the first 23 days of November totaled almost 200 Bcf compared with this year's buildup of 47 Bcf during the same period. With last week's additions, working gas stock levels stood at an EIA-estimated 3,156 Bcf, which is 25 percent, or more than 600 Bcf, higher than last year's level. Attractive spot and futures prices and the unseasonably warm temperatures that dominated much of the country in November have contributed greatly to the sustained stock build that has added a record of more than 2,400 Bcf since early April. Urban areas in the Midwest and the East have seen heating-degree-day declines from normal of between 16 and 34 percent since late October and the National Weather Service (NWS) has forecasted that warmer weather will continue into the first 12 days of December. If this weather forecast proves accurate and prices remain low, firms with access to remaining storage capacity may continue to add to storage levels. The last time the industry continued to build stocks in late November and early December was during the mild winter of 1998-99. (Storage Figure)

Other Market Developments:

Enron Corporation suspended its Internet energy trading system last week. It also was removed from the list of companies comprising the S&P 500, and on Friday, November 30, its stock price fell to $0.25 per share (from a high of almost $90 earlier in 2001). With a proposed merger with Dynegy Corp. suspended indefinitely, the company filed for bankruptcy on Sunday, December 2. Until recently, Enron was the nation's largest natural gas and electricity trader. According to the Wall Street Journal, some industry analysts have estimated that Enron was once involved in as much as 20 percent of daily trade in the markets for these energy commodities.

Summary:

After an early surge, prices at most major spot markets dropped sharply by the end of last week as weak demand continues. The industry continued to build stocks into the 2^nd half of November, and a record 2,400 Bcf of working gas has been added to storage since the end of March. Futures prices remain well below $3.00 per MMBtu for all forward months through October 2002.