4-30-07 Energy Update

WEEKLY ENERGY MARKET UPDATE

Friday (4/27) energy settlements:
May NYMEX gas expired: $7.508
June NYMEX gas: $7.831
Summer: June-October ’07: $8.063, Winter ’07-’08: $9.63
The NYMEX one-year strip $8.75, 2-year strip $8.77, 3-year $8.67
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
April Crude oil: $66.46, #2 oil $1.913

The March – May expiration prices of $7.547, $7.558 and$7.508 respectively, completed the tightest spread of these 3 months since the $0.04 range in 1998 and ties the $0.05 range of 1991, for the initial spring season of NYMEX gas trading. ’98 turned out to be the lowest priced and least volatile year of the late 90’s. The $7.50 price seems to have a feeling of market equilibrium, and incidentally the 40 month moving average is $7.52. The one year strip at $8.75 seems to have far too much insurance premium in it and I would defer longer range purchases for now.

The gas market immediately rose after the May expiration as traders piled on as soon as they found the Bank of Montreal in a losing bearish options strategy. BOM announced losses in gas trades in the $300-$400 million dollar range due to “reduced liquidity and lower volatility in the gas market during the 1st quarter.” (Last year, it was Mother Rock that collapsed a few weeks earlier.) Look for lower prices once this latest “crash and burn” incident is cleared away. 4 of the last 6 June contracts have reached their lows after becoming the prompt contract and coincident with contract expiration.

Meanwhile, crude retested its March 30th high of $66.70 after the Saudi government announced it had taken 172 Al Qaeda members into custody just as they were in the final stages of a well financed and sophisticated plan to attack its oil fields and an oil refinery. If crude can settle above this high, it should be off to test $75 again.Incidentally, when it did that last year, natural gas declined below $6.00.

June NYMEX gas closed $1.30 above the average settlement for April 27th for the last 3 yrs, yet the forward strip prices are all lower than this time over these last years. I think what that is telling me is that the present high prices are that result of the Bank of Montreal trading problems and that the market understands that we are better prepared to handle another Katrina-Rita disaster now than in 2005.

Oil giant Exxon Mobil Corp. kicked off 2007 with a 10% rise in profits, earning $9.3 billion in the January-March period. I hope you have a good year too.

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