Overview:  Monday, October 15, 2001

Natural gas prices generally rose last week despite mild temperatures throughout much of the country (See Temperature Map) (See Deviation Map).  After beginning the week down on Monday, October 8, spot prices at the Henry Hub climbed through Thursday before dropping 10 cents on Friday, October 12, to  end the week at $2.31  per million Btu, $0.19 or almost 9 percent above the previous Friday.  At the NYMEX futures market, the settlement price for November delivery at the Henry Hub settled at $2.43 per million Btu, 32 cents above the previous Friday.  Net additions to storage in the week ended October 5 were 1 billion cubic feet (Bcf) below the prior week, but, at 65 Bcf, remained above historical levels.  The price of West Texas Intermediate (WTI) crude oil closed at $22.55 per barrel ($3.89 per million Btu), up $0.15 or  less than 1 percent over the previous Friday.

 

Prices:

Prices rose through most of last week at major market locations throughout the country.  Spot prices at the Henry Hub on Monday fell 8 cents per million Btu off the closing price of Friday, October 5, and rose through Thursday before declining on Friday to finish at $2.31 per million Btu.   Prices at other market locations across the country also followed a similar pattern by falling early in the week, then rising to end the week with gains between roughly 5 and 51 cents per million Btu over the previous Friday.  The rally in prices through mid-week appears to have been driven by premature anticipation of the first winter-like temperatures in major market areas, technical factors, and the covering of short positions in the futures market.  However, these factors were not sufficient to maintain the upward price trend through the entire week.  Barring extreme changes in weather, it appears likely that supplies will be adequate to forestall significant upward price movement during the coming week.

 

The NYMEX settlement price for November delivery at the Henry Hub climbed throughout most of the week and ended the week at $2.43 per million Btu, up $0.32 or almost 15 percent above the previous Friday.   The settlement price for the November contract opened more than 7 percent higher than the previous Friday and continued its ascent through Thursday before declining slightly on Friday.  The differential between the spot price and the near-month settlement price diminished as the week progressed after peaking on Tuesday, October 9 at roughly 27 cents per million Btu.  The settlement prices for futures contracts for delivery in December and in January also climbed throughout most of the week, with the price of delivery in each successive month greater than the price of delivery in the preceding month.  The market is in contango with the settlement price for future delivery during the winter exceeding the spot price.  This  provides suppliers an incentive for storing gas that will almost certainly push working gas in storage past the 3 trillion cubic foot mark with the next report on net additions.

Spot Prices ($ per MMBTU)-Selected Trading Centers Mon. 10/08 Tues. 10/09 Wed. 10/10 Thur. 10/11 Fri.  10/12 Henry Hub 2.04 2.12 2.23 2.41 2.31 New York citygates 2.41 2.43 2.51 2.64 2.51 Chicago citygates 2.02 2.09 2.24 2.41 2.34 Northern CA PG&E 1.82 1.75 1.93 2.26 2.12 Southern CA (SOCAL) 1.92 1.86 2.02 2.31 2.25 Futures (Daily Settlement, $MMBTU)           November Delivery 2.270 2.388 2.480 2.531 2.430 December Delivery 2.647 2.741 2.802 2.833 2.725 Source: Financial Times Energy, Gas Daily.

 

Storage:

Net additions to storage for the week ending October 5 were estimated to have been 65 Bcf according to the American Gas Association (AGA). This latest weekly estimate is down 1 Bcf from the level of the previous week and brings working gas stocks to an EIA-estimated 2,991 Bcf, which is more than 8 percent higher than the previous 6-year (1995-2000) average. (See Storage Figure)   Inventories exceed average levels in each region. The margin in the West region is so substantial that although no net additions were reported for the most recent week, inventories there remain  more than 8 percent above average.   If daily net additions during the 4 weeks remaining in the refill season match the previous 6-year October average of almost 6.7 Bcf per day, working gas on November 1 will surpass 3,160 Bcf.  

 

All Volumes in BCF Current Stocks (Fri,10/5) Estimated 6-Year (1995-2000) Average Percent Difference from 6 Year Average Net Change from Last Week One-Week Prior Stocks (Fri,9/28)* East Region 1,771 1,718 3.1% 46 1,725 West Region 378 350 8.1% 0 378 Producing Region 842 693 21.5% 19 823 Total Lower 48 2,991 2,761 8.3% 65 2,926 Note:  net change data are estimates published by AGA on Wednesday of each week.  All stock-level Figures are EIA estimates based on EIA monthly survey data and weekly AGA net-change estimates.  Column sums may differ from Totals because of independent rounding.  *Revised to incorporate EIA survey data for July 2001.

 

Other Market Trends:

Rigs drilling for natural gas numbered 933 according to the Baker-Hughes rig count report released on Friday, October 12.  This is a decline of 3 rigs from the prior week, marking the seventh consecutive week in which the number of rigs has declined.   Since reaching its record-setting peak during the week ended July 13, 2001, rigs drilling for gas have declined in 12 out of the 13 following weeks.  Nevertheless, the rig count remains almost 12 percent above the level recorded during the same week last year, and almost 30  percent above the average number of gas rigs for all of 2000.

 

Summary:

Despite sufficient supplies and mild demand, prices at many major pricing locations including the Henry Hub increased last week before declining slightly on Friday, October 12.  Prices at the NYMEX futures market also climbed throughout most of the week and settled at $2.43 per million Btu on Friday.  Working gas storage estimates appear poised to surge past 3 trillion cubic feet in the coming week.