7-23-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (7/20) energy settlements:
August NYMEX gas: $6.446
Summer: August-October ’07: $6.55, Winter ’07-’08: $8.49
The NYMEX one-year strip $7.85, 2-year strip $8.24, 3-year $8.30
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $75.79, #2 oil $2.09

Gas storage, at 2.692 Tcf is about one full month ahead of the 5-year average for this time of year, and working gas in storage is likely to end July at the highest level ever. Last July’s heat required a peak day burn of 34.5 Bcf to generate power. This July’s max day has been 29.5 and although the CDD days have varied greatly by region, overall gas consumption for power generation has been lower in ’07 than ’ 06, so storage injections have been 76% higher than last July. July LNG imports set a new all-time record at 3.3 Bcf/d, but shipments should decline in August as European prices become more attractive. A long term marker to watch; Canadian imports are off 7% this year.

As bearish as the fundamentals seem, the technical indicators point to a rebound in prices. Non-Commercials are extremely oversold and the Commercials hold their largest net long position since last November’s rally. Last week’s pit trading opened and closed at $6.44, a weekly doji, which has nearly always indicated a change in price direction. A fun fact; last year’s Q3 low was $6.44, and it was in the August contract, occurring on July 6th.

Crude oil prices continue to rise like there is nothing to stop them from retesting the old NYMEX high of $77.95, but unleaded gasoline and heating oil both traded lower last week. My guess is that traders are long crude and short nat gas. If I’m correct, the inevitable crude sell-off will be the trigger to the nat gas rally.

You should own up to 50% of your future gas needs through January by now. Will price go lower this week, or will prices rally now, and then trade lower near Labor Day if there are no Gulf storms? Probably not to the former question, and probably yes to the latter if there are no storms, but I’d buy insurance right now anyway.

The big story in natural gas is last week’s opening of the Independence Hub. This engineering marvel is located in 8,000 feet of water 123 miles SE of Biloxi, Miss. It is the deepest production platform ever installed and also is the world's largest offshore natural gas processing facility. The Hub will deliver 1 Bcf/d by late 2007.

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