10-29-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (10/26) energy settlements:
November NYMEX gas closed: $7.218
Winter ’07-’08: $7.87
The NYMEX one-year strip $7.90, 2-year strip $8.19, 3-year $8.25
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.943, Last Summer: $6.79
Last winter: $7.16
Crude oil: $91.86, #2 oil $2.43

The bearish divergence in the daily MACD and RSI I mentioned last week proved to be good indicators as gas traded lower early in the week, but the move in crude to another new all-time high carried natural gas in sympathy. The November contract expiration on Monday (10/29) could be a carbon copy of last year’s $7.15, and given the similar fundamentals, I can understand why.

Last year, December gas expired at $8.31. That’s the only expiration above the $5.50-$8.00 trading range since the ’05 hurricanes. While I expect continued volatility and December gas could trade above $8 intra-month while still remaining in its present trading channel, I’d be very surprised if we repeat the ’06 expiration price this year.

Working gas in storage, at 3.443 Tcf as of 10/19 is only 18 Bcf short of last year’s all-time record, and with 2 weeks left in the “traditional” injection season, 3.5 Tcf seems a given while long range weather forecasts would indicate additional injections throughout November. This sets up well for lower prices in Q1 gas and I suggest that you limit the urge to buy more gas beyond December or January.

During the 3rd quarter of 2007, US well completions soared to the highest quarterly level in more than two decades. An estimated 13,543 gas and oil wells were drilled, the most since Q3 of 1985. 7,628 gas wells were completed, the highest 3rd quarter on record.

If I were a hedge fund manager with profits in crude oil, the Euro and gold with the year’s end and my bonus within sight, I’d at least be thinking about selling my crude position. Crude and products are well supplied. I know the Turkey-Kurd-Iraq issue is unsettling but that was a big worry when we attacked in 2003. The weak dollar is a protracted problem but that gives traders a backstop for another run up in oil in 2008 since that was the reason given for this rally until the Kurd attacks.

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