9-17-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (9/14) energy settlements:
October NYMEX gas closed: $6.279
Winter ’07-’08: $7.81
The NYMEX one-year strip $7.62, 2-year strip $7.95, 3-year $8.00
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $79.10, #2 oil $2.2078

Trading patterns suggest that a large trader is short October gas. The CFTC claims that ICE (Intercontinental Exchange, which trades OTC and is not subject to CFTC oversight) is providing confidential position reports to the commission and that no trader appears to be in a position that would adversely affect the orderly operation of the gas market. I hope so, but there are other OTC market makers who don’t report and we may not have the clear picture yet. Regardless, October gas was up $0.75 from the previous week while weather as of 9/14 was not a factor and storage matches last year’s record level for this week at 3.069 Tcf in the ground.

Gas has traded higher mid-month and then declined into expiration each month since July. I expect to see price weakness in the October expiration just as there has been expiration weakness in 17 of the last 21 months, (April and May being the only exceptions this year). If that occurs, don’t hesitate to buy future gas positions, because natural gas always rallies in the 4th quarter and it usually turns bullish in early October.

Crude oil traded up to $80.35 last week. Behind the hype of this bull market lurks a fact few wish to confront. The dollar’s weakness makes the increase in crude a bigger problem for the US than the EU. Crude trades in dollars, so $80 crude is just over 57 bucks to the French or Italians and about $40 to the British. The US spends over $8.5 billion per month in Iraq and has chosen to borrow the funds rather than pay for it by reducing other expenses or increasing taxes. The lingering effect is more pressure on the dollar internationally and a greater energy “tax” domestically. Interestingly, the OPEC “price hawks” like Chavez also face a conundrum. Like a vengeful spouse in a bad divorce they want to harm the US economy with high oil prices, but they can’t live without our alimony payments for their crude. As it shakes out, a recession will hurt all sides but the little guys will pay the biggest price. In the interim, we all need to conserve energy. Driving less and watching the thermostat will help us financially and environmentally.

The most economical way to develop Alaskan gas reserves has long seemed to be liquefying them into LNG or converting them to ultra-clean diesel in a gas to liquids operation, rather than building a mammoth pipeline, yet the pipeline continues to have life. Last week, Bill Allen, the former chairman of VECO Corp, testified that he paid a lawmaker to help keep him in office and advocate for the construction of the pipe. The money was paid to former House Speaker Pete Kott in an inflated invoice for a flooring job to Kott’s business. That’s one down. How many more to go?

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