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Overview: Thursday, November 17 (next release 2:00 p.m. on December 1)
Since Wednesday, November 9, natural gas spot prices have increased at virtually all market locations in the Lower 48 States, with increases exceeding $2 per MMBtu at most markets. On Wednesday, November 16, prices at the Henry Hub averaged $11.04 per MMBtu, increasing $1.73 per MMBtu, or more than 18 percent, since the previous Wednesday. The futures contract for December delivery has increased 66 cents per MMBtu, or about 6 percent on the week (Wednesday-Wednesday), settling at $12.329 per MMBtu yesterday (November 16). Natural gas in storage was 3,282 Bcf as of November 11, which is about 6 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased $1.80 per barrel, or about 3 percent, on the week to $57.85 per barrel or $9.974 per MMBtu.
Spot prices increased at most market locations by more than $2 per MMBtu since last Wednesday, November 9, despite significant price declines of as much as $1.86 per MMBtu through Friday, November 11. A price rally began on Monday, November 14, and grew progressively stronger and more geographically widespread each day, culminating in large across-the-board gains through Wednesday, November 16. The East and West coast regions of the Lower 48 States saw prices climb between $1.65 and $2.00 per MMBtu on average, while the areas in between had even larger price spikes. The largest price increases occurred in the Midcontinent and Rocky Mountains regions, where prices climbed by as much as $2.82 per MMBtu. Colder temperatures moving into most of the Lower 48 States, and the lingering natural gas production shut-ins in the Gulf of Mexico likely contributed to the price increases. However, the Minerals Management Service (MMS) reported that shut-in natural gas production fell to 3.7 Bcf per day as of Wednesday, November 16, from its level of 4.0 Bcf per day the previous Wednesday. Cumulative shut-in production since August 6, 2005, reached 450 Bcf as of November 16, which is equivalent to 12.3 percent of yearly natural gas production in the Gulf of Mexico. Lingering uncertainty in the natural gas market about the sufficiency of supplies and the severity of the upcoming winter also appears to be providing support to the elevated price level, as prices at most market locations remain about $3 to $5 or about 45 to 72 percent above last year's level at this time. Prices at the Henry Hub on Wednesday, November 16, exceeded last year's level by $4.47 per MMBtu or about 68 percent.
At the NYMEX, the price of the futures contract for December delivery at the Henry Hub increased about 66 cents per MMBtu or about 6 percent since Wednesday, November 9, to $12.329 per MMBtu. Prices for the other futures contracts through March 2006 increased about 6 percent or about 75 to 78 cents per MMBtu during the same period. The 12-month futures strip (December 2005 through November 2006) traded at a premium of 33 cents per MMBtu relative to the Henry Hub spot price, averaging $11.37 per MMBtu as of Wednesday, November 16. Nevertheless, the futures contract prices for the upcoming heating season months (December 2005 through March 2006) are $1.81 per MMBtu higher than the Henry Hub spot price on average. Since November 4, 2005, the December futures contract has traded at a premium of $1.71 per MMBtu and $3.08 per MMBtu to the Henry Hub spot price before the spread narrowed to $1.29 per MMBtu yesterday (Wednesday, November 16). Differentials of this magnitude between the spot price and the futures contract prices provide suppliers economic incentives to continue injecting gas into storage through the remainder of the month, which results in higher demand for natural gas on the spot market.
Recent Natural Gas Market Data
Working gas in storage increased to 3,282 Bcf as of Friday, November 11, which is 5.8 percent above the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). During a week in which hurricane-related production shut-ins continued, the implied net inventory change was an increase of 51 Bcf, compared with a 5-year average decrease of 3 Bcf and no net change in inventory during the report week last year. Natural gas production shut-ins from Hurricanes Katrina and Rita reduced supplies from the Federal waters of the Gulf of Mexico by an estimated 26 Bcf during the report week, according to the Minerals Management Service (MMS). Even so, demand losses from power outages and off-line industrial complexes in the Gulf Coast region may have resulted in increased supplies available for injection into storage. Moderate temperatures across the United States also likely limited demand for space-heating during the first full week of the heating season (See Temperature Maps). Heating degree days (HDDs) were below normal in each region, resulting in overall HDDs more than 40 percent below normal for the Lower 48 States in the week ending November 10, according to the National Weather Service. As of November 11, natural gas in storage was 50 Bcf below the level at the same time last year and 179 Bcf above the 5-year average.
Other Market Trends:
Third Quarter Financial Performance of Major Energy Companies: On Thursday, November 10, the Energy Information Administration (EIA) issued its quarterly "Financial News for Major Energy Companies" that reported recent trends in the financial performance of major energy companies from July through September 2005. In this year's third quarter, 21 companies reported overall net income of $26 billion, which is 69 percent higher than in the third quarter of 2004. The report cited higher crude oil and natural gas prices, higher refining margins, slightly higher demand in the countries comprising the Organization for Economic Cooperation and Development (OECD), and higher foreign refinery throughput as primary reasons for the increase in net income. Broken down by worldwide lines of business, petroleum operations increased net income by 51 percent between third quarter 2004 and third quarter 2005. This jump consists of a 43 percent increase in income from oil and natural gas production and a 73 percent increase in income from refining and marketing. The upward trends in income occurred despite an 11 percent decrease in domestic crude oil production and a 7 percent decrease in natural gas production by the U.S. companies who reported production estimates. EIA also reported a 13 percent rise in earnings from downstream natural gas and power operations owing to warmer weather, higher natural gas liquids prices, and reduced operational costs. Chemical operations was the only line of business to report lower third-quarter earnings than last year. According to the report, companies cited higher feedstock costs and effects of hurricanes to explain the 56 percent reduction in earnings.
Natural gas spot prices increased at virtually all market locations in the Lower 48 States since last Wednesday, November 16. Prices for the futures contracts for the upcoming winter (December 2005 through March 2006) continued to trade at a large premium to the Henry Hub spot price. Working gas in storage was 3,282 Bcf, which is about 6 percent above the 5-year average.
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