Natural Gas

Overview:

Since Wednesday, June 19, natural gas spot prices increased at most locations, despite declines ranging between 5 and 14 cents per MMBtu on Wednesday, June 26. For the week, prices at the Henry Hub increased 19 cents to $3.42 per MMBtu, which is an increase of almost 6 percent. High temperatures and rising crude oil prices contributed to increased cooling demand for gas, which spurred the price hikes. The NYMEX futures contract for July delivery at the Henry Hub expired yesterday (June 26) at $3.278 per MMBtu, falling over 17 cents in its final day of trading. Natural gas in storage increased to 2,184 Bcf, which exceeds the 5-year average by more 20 than percent. The spot price for West Texas Intermediate (WTI) crude oil increased $1.10 per barrel or over 4 percent since last Wednesday, trading at $26.67 per barrel or $4.60 per MMBtu.

Prices:

Spot prices climbed at most market locations in the Lower 48 States during the past week driven principally by soaring temperatures across the country. Since Monday, June 24, most locations recorded gains ranging between 10 and 30 cents. However, moderating temperatures and a cool front moving through the Midwest contributed to declines on Wednesday, June 26, ranging between 5 and 14 cents at most market locations. Some Rocky Mountain locations and Malin, California, had gains of 12 to 27 cents since Monday, despite overall price declines of 21 to 32 cents since last Wednesday (June 19), which are the only week-to-week net price declines in the country. Price increases for the week were the largest in southern California, Florida, the Midcontinent, and the Northeast, where prices increased more than 25 cents at most locations.

At the NYMEX, the settlement price of the futures contract for July delivery at the Henry Hub fell by almost 4 cents during the week to a final settlement price of $3.278 per MMBtu, owing to a drop of more than 17 cents in its final day of trading. Prices of the futures contracts for delivery during each of the other months remaining in 2002 fell roughly 14 cents per MMBtu on Wednesday, June 26. The settlement prices of these contracts declined between 3 and 6 cents for the week, despite the considerable daily variation in price. The price of the futures contract for August delivery at the Henry Hub settled at $3.353 on Wednesday, almost 8 cents higher than the price of the expiring July contract, and nearly 7 cents less than the Henry Hub spot price. The contract for August delivery begins trading as the new near-month contract today (Thursday, June 27).

Storage:

Natural gas in storage totaled 2,184 Bcf in the Lower 48 States for the week ended Friday, June 21, 2002, according to EIA's Weekly Natural Gas Storage Report. This is over 20 percent above the 5-year average, and almost 24 percent above the level last year for the same report week (See Storage Figure) . Moreover, working gas in storage for this time of year is at the highest level ever recorded in the 9 years of weekly storage data. Similarly, storage levels in each region are robust relative to historical averages with the East region almost 11 percent above average; the West region over 23 percent above average; and the Producing region over 36 percent above average. The implied net change in stocks for the week ended June 21 was 88 Bcf, or almost 5 percent above the 5-year average for the week. However, implied net injections were nearly 16 percent below last year's net injections of 104 Bcf. This may be attributed at least in part to somewhat moderate cooling demand for natural gas, as cooling degree days for the week ended June 22 were almost 8 percent less than last year at this time, and slightly more than 3 percent below normal. (See Temperature Map) (See Deviation Map)

Other Market Trends:

Natural Gas Rig Counts: The number of rigs drilling for natural gas decreased by 11 to 698 for the week ended Friday, June 21, according to Baker-Hughes Incorporated. This is the fourth consecutive week that the number of rigs has fallen from its recent high of 725 recorded on May 24, 2002. The recent declines were preceded by 7 weeks of increases. Natural gas rigs are over 34 percent below last year at this time when they numbered a then-record high of 1,063. Rigs drilling for natural gas in the past 6 weeks comprise 84 percent of total rigs drilling, which is close to a record for the split between gas and oil rigs. The emphasis on gas prospects reflects the relative advantage in the average natural gas wellhead prices compared with the first purchase domestic price for crude oil. The share of rigs drilling for natural gas has been consistently above 80 percent since early last year.

Summary:

Spot prices climbed at most market locations during the week since June 19 with increases ranging between 12 and 24 cents. The futures contract for July delivery expired yesterday, settling at $3.278 per MMbtu. As of June 21, storage stocks were 2,184 Bcf, a level well above the weekly maximum for the past 5 years. Roughly five of every six rigs drilling in the United States is drilling for natural gas.

Natural Gas Summary from the Short-Term Energy Outlook