Overview:

Spot and futures prices reversed their downward trends from the previous week, as sweltering temperatures returned to many parts of the nation early this week. At the Henry Hub, average spot prices increased 4 days in a row from last Wednesday (August 7), gaining 30 cents per MMBtu to reach $3.03 per MMBtu on Tuesday (August 13), which was repeated yesterday. This pattern was mirrored by the price of the NYMEX futures contract for September delivery at the Henry Hub, which rose a cumulative 25 cents per MMBtu for the week to settle at $2.910 per MMBtu on Wednesday, August 14. Working gas in storage for the week ended Friday, August 9 was 2,620 Bcf, which exceeds the average for the previous 5 years by just under 15 percent. The spot price for West Texas Intermediate (WTI) crude oil posted a gain of $1.61 per barrel for the week, highlighted by a near-$1 increase on Monday, August 12. WTI ended trading yesterday at $28.19 per barrel, or $4.86 per MMBtu.

 

 

Prices:

Spot prices began moving up on Thursday and Friday of last week, bolstered by increasing temperatures and forecasts calling for a return to heat-wave conditions. By early this week, high temperatures in the 90s had returned to many high-gas consuming areas of the nation, with the heat wave focused particularly in the Northeast and Southwest, where 100-plus degree temperatures were not uncommon. Price increases for the week at most market locations ranged from 17 to 40 cents per MMBtu, with increases in the Northeast, at 50 cents or higher at most points, showing the largest gains. For the week, the spot price at Transco Zone 6 for New York delivery had the largest increase at $1.34 per MMBtu. Although the price at this point dropped 52 cents per MMBtu in yesterday’s trading, at $4.38 per MMBtu it was still the highest-priced gas in the nation by far. Midwest price increases averaged a little over 30 cents per MMBtu. The spot price for delivery to Chicago citygates rose 31 cents, to $2.96 per MMBtu. Prices in the Rocky Mountain area were slow to join the rally, with prices there continuing to decline through Friday of last week. However, with the extreme heat in the Southwest extending upward into California and parts of Oregon, Rockies price increases have caught up quickly in the last 3 days, resulting in week-over-week increases ranging from 30 to 44 cents per MMBtu, and averaging 35 cents per MMBtu.

 

Natural gas futures prices rose steadily for the first 4 trading days since last Wednesday (August 7), sparked by a relatively low imputed net injection figure of 33 Bcf and rising temperatures. The price rally was punctuated by a jump of over 20 cents per MMBtu in the price of the near-month contract to a settlement price of $2.965 on Monday, reportedly driven primarily by non-commercial traders covering short positions. However, the rally stalled in trading on Wednesday, August 14, as the September contract declined $0.065 per MMBtu to settle at $2.910. In its Friday, August 9 Commitment of Traders Report, the Commodity Futures Trading Commission reported that the short position of non-commercial traders had increased to a net of 31,916 contracts, their highest short position since February 12.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	8-Aug	9-Aug	12-Aug	13-Aug	14-Aug
Henry Hub	2.75	2.83	2.91	3.03	3.03
New York	2.99	3.41	4.10	4.90	4.38
Chicago	2.66	2.73	2.82	2.95	2.96
Cal. Comp. Avg,*	2.46	2.54	2.70	2.76	2.74
Futures ($/MMBtu)
Sept delivery	2.745	2.761	2.965	2.975	2.910
Oct delivery	2.784	2.804	3.001	3.018	2.955
*Avg. of NGI's reported avg. prices for: Malin, PG&E citygate,
and Southern California Border Avg.
Source: NGI's Daily Gas Price Index (http://intelligencepress.com).

 

Storage:

Working gas in storage for the week ended Friday, August 9 was 2,620 Bcf, according to the EIA Weekly Natural Gas Storage Report. At this level, total U.S. inventories are greater than the average for the previous 5 years (1997-2001) by just under 15 percent. They exceed last year’s levels at this time by 279 Bcf. The implied net change was a total net injection of 53 Bcf, which is just 3 Bcf below the 5-year average. Of the 3 regions, the Producing region experienced the greatest deviation from its average, recording an injection of just 1 Bcf compared with its average for the week of 6 Bcf. The week’s implied net injections were nearly 61 percent higher than the 33 Bcf imputed for the prior week, reflecting in part the sharp difference in temperatures between the 2 weeks. After some of the hottest weather of this summer, with reports of 100-plus-degree high temperatures, the week of this current storage report seemed mild by comparison, as cooling degree days declined markedly in nearly every Census Division, dipping significantly below normal in the divisions that encompass many of the highest gas consuming areas of the country. (See Temperature Map) (See Deviation Map) (See Storage Figure) The cooler temperatures resulted in diminished electricity demand for air conditioning, resulting in the idling of gas-fired electricity generating units, thus diverting more gas into storage. All regions continue to show significantly higher-than-average inventory levels, with the West and Producing regions maintaining double-digit percentages above average.

All Volumes in Bcf	Current Stocks 8/9//2002	Estimated Prior 5-Year (1997-2001) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 8/2/02
East Region	1,459	1,354	7.8%	45	1,414
West Region	367	306	19.9%	7	360
Producing Region	794	628	26.4%	1	793
Total Lower 48	2,620	2,287	14.6%	53	2,567
Source: Energy Information Administration: Form EIA-912, "Weekly Underground Natural Gas Storage Report," and the Historical Weekly Storage Estimates Database.

 

Other Market Trends:

FERC Staff Addresses Quality of Publicly-Reported California Natural Gas Price Data in Power Market Investigation: Federal Energy Regulatory Commission (FERC) staff has concluded that publicly-reported California natural gas prices for a period during 2000-2001 are not sufficiently reliable for use in ongoing proceedings at the Commission. As part of its probe into possible price manipulation in Western energy markets and the need for refunds to buyers of electricity in California, FERC staff said that there are preliminary indications that manipulation of publicly-reported natural gas spot prices may have occurred. FERC staff noted spot prices for natural gas at California delivery points in the past correlated highly with prices at producing locations and the Henry Hub. However, during the months of October 2000 to July 2001, the correlation was abnormally low. Staff reported that it cannot independently validate published price data because of a lack of formal verification procedures. FERC’s final determination for the level of natural gas prices will be used to establish the amount of refunds owed to California buyers of electricity during the energy crisis. Rather than rely on prices at California delivery points, FERC staff suggested that the Commission calculate California gas prices using spot prices from producing areas, plus an allowance for interstate natural gas pipeline and local distribution company charges to transport the gas to market. Such a calculation would result in a dramatic reduction in the mitigated market clearing price for electric power in California during the period.

 

Summary:

Spot and future prices trended upward strongly, as very hot weather returned to many parts of the nation. Working gas in storage was 2,620 Bcf, with an implied net change of 53 Bcf, which is just 3 Bcf below the 5-year average.

 

Natural Gas Summary from the Short-Term Energy Outlook