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Oil & Gas Journal

Sam Fletcher
Senior Writer

HOUSTON, May 16 -- Natural gas dropped as low as $11.14/MMbtu in intraday trading May 15 in the New York futures market, its lowest price in more than a week, following a government report of a bigger-than-expected increase in US underground storage.

"Despite missing out on the Independence Hub's 900 MMcfd of production for more than a month, the natural gas industry proved…it can still put healthy injections into storage after the Energy Information Administration reported that 93 Bcf was deposited for the week ended May 9," said analysts with Pritchard Capital Partners LLC, New Orleans (OGJ Online, May 15, 2008).

The crude futures market remained volatile with the front-month contract trading at $120.75-126.64/bbl before closing at $124.12, down 10¢ for the day on the New York Mercantile Exchange.

Some said part of that volatility resulted from passage of Congressional legislation to provide more extensive regulatory oversight of energy markets. In other action, the House Ways and Means Committee approved $56.6 billion in tax incentives for wind, solar, and other alternative energy sources. That bill would renew for 6 years a 30% tax credit for investments in commercial solar and fuel cell energy projects. The House is expected to approve the bill next week, but it faces opposition from Senate Republicans for lack of a provision to blunt the impact of the alternative minimum tax.

After the close of regular floor trading, crude hit a record high of $127.82/bbl in overnight electronic trading May 16. "Higher prices are being driven by the expected increase in petroleum product demand from China as the country recovers from the May 12 earthquake," said analysts in the Houston office of Raymond James & Associates Inc. They said the front-month gas contract recovered most of its previous loss and also was trading higher.

Analysts at Pritchard Capital Partners said, "Oil prices are sharply higher this morning even as President [George W.] Bush begins his visit designed to beseech the Saudis for some extra crude production." They credited "strong technical support, the normal pre-weekend jitters," and a May 16 forecast by Goldman Sachs Group Inc. that the average price of West Texas Intermediate oil will increase in the second half of 2008 by 32% to $141/bbl from an earlier prediction of $107/bbl. Earlier this month Goldman Sachs analysts said crude prices could escalate to $150-200/bbl within 2 years (OGJ Online, May 6, 2008).

Trade on the IntercontinentalExchange (ICE) was suspended for 3 hr on May 15 due to a power failure. There also were unsubstantiated reports of an early release of the EIA's weekly report on commercial US crude inventories. EIA officials denied claims that the report had been leaked 8 min earlier than the scheduled release time.

China's earthquake
Meanwhile, recovery efforts in the wake of recent massive earthquake in China could boost demand for petroleum fuels for construction and transportation. "Oil demand growth from 2007 to 2008 in China was recently estimated by the International Energy Agency to come in at 350,000 b/d on a base of 7.54 million b/d. In our view, the earthquake may actually add to this forecast," said Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC.