3-26-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (3/23) energy settlements:
April NYMEX closed: $7.269
Summer ’07: $7.67, Winter ’07-’08: $9.30
The NYMEX one-year strip $8.35, 2-year strip $8.38, 3-year $8.28
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33
Last winter: $7.16
May Crude oil: $62.28, #2 oil $1.71


Mark Twain said that history doesn’t repeat itself, but it rhymes. As gas settled last week at $7.269, it is worth recalling that both a year and two years ago, gas was 7.467 and 7.255 respectively at this time and in both years after we made an April high, prices cratered into June expiration. Meanwhile, May gas has settled below its close on March 23rd in 5 of the last 6 years.

The EIA reported a storage INJECTION last week of 17 Bcf. LNG imports are at an all-time record high, and gas storage holders are refilling storage at every opportunity to profit from the nearly $3 spread between cash price and the January futures price. From a technical perspective, the run up in prices last week only closed the price gap I mentioned a week ago, and the rally stopped at a 50% retracement from January’s high; a classic technical trading move. In the two prior weeks, April gas declined $0.16 per week before gaining $0.34 this week which is why they call it trading, I guess.

Cash gas is weak as circus lemonade, and speculators are increasing their short positions, which is what you generally see before you make a low. Remain patient and unless your company’s purchasing model requires you to buy longer term at the end of the quarter, don’t buy yet. Let’s face it, if some market participants believe that many corporate and municipal buying plans require purchases to be made at this time, rest assured they will attempt to profit from it.

Most people are good and fair folks who disdain the minority who would manipulate markets to enrich themselves at the expense of the greater good. So, it comes as no surprise that the Senate committee probing energy market manipulation has received an outpouring of unsolicited informants from the gas industry reporting their own experiences with price manipulation and offering their ideas about how to provide better oversight.

My only concern is about a real supply shortage this year is in gasoline. Refiners have done a splendid job of increasing capacity out of old units, especially in light of the “Baskin & Robbins” selection of fuel specifications they have to provide. World demand for gasoline continues to grow and in the short term, we’ll have the unhealthy situation of dampening demand through higher prices rather than meeting it with adequate supply.

Some industry experts ask, where is the logic when the government has fought two wars over foreign oil in the past 15 years yet they won’t fight for oil independence? If they’re serious about the subject, it’s time to ramp up government spending on research for methane hydrates, which are estimated to hold 200,000 Tcf. The government took the lead in research for deepwater drilling. Scientists informed on the subject believe that $100 million per year over the next5 years would let us know if hydrates are economically viable. That’s less than we spend in you know where in a month. The tax benefits we give to “farm aid projects” like ethanol and biodiesel are comparable to the investment required to fully research hydrates, and the aforementioned are adding to the natural gas supply problem instead of being part of the solution. In short, these expert’s say that it is time to take a leadership role in our energy future. Where do you stantd?

Please feel free to call me to discuss any questions you may have about your specific energy plan.