WEEKLY ENERGY MARKET UPDATE:



Friday (10/19) energy settlements:
November NYMEX gas closed: $7.041
Winter ’07-’08: $7.79
The NYMEX one-year strip $7.80, 2-year strip $8.07, 3-year $8.13
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.943, Last Summer: $6.33
Last winter: $7.16
Crude oil: $88.60, #2 oil $2.33

Last week, natural gas ignored the ongoing speculative exuberance in crude oil which reached $90 a barrel. Gas settled just slightly higher than the previous week and only a dime above its average monthly settlement price of the last 12 months. From a technical perspective, gas looks like it will trade lower, as its daily continuation chart has a bearish divergence in its Relative Strength Index (RSI) as well as the Moving Average Convergence Divergence (MACD)(Both moved lower as gas moved higher). These have historically been accurate indicators of lower price action. We may well see $100 oil while gas has a “6” in front of it before the end of October.

There is also bearish fundamental data. The extremely warm weather while nuclear power plants have been down for planned maintenance has caused gas fired power generators to consume about 3 Bcfd. Now, moderating temps will relieve that condition, sending more gas to storage. Consequently, we expect the November ‘07 contract expiration to be in line with or lower than last November’s price of $7.15. If you choose to buy forward, buy on support in the $6.50 to $6.75 range or buy monthly settlements.

Weather Frontier issued its winter ’07-’08 Outlook last week and predicts a “La Nina” dominated, warmer than normal winter with only the month of February being colder than normal and even that is limited to the Great Lakes region. The Farmer’s Almanac calls for warmer than normal too with early December being the only time we see below average temps.

Looking ahead, Qatar expects to more than double its exports of LNG to 77 million tons per year by 2011, equaling roughly 20% of the global supply and yet its super giant North Field should have 97 years of reserves left at that production rate. But, the message to the world is that Qatar has no intentions to expand its LNG sales beyond its 2011 output. If the growth does not come from Qatar, where else will it come from? Russia, Iran, west Africa and Australia are likely candidates but, each has its own set of challenges that would add to the cost of LNG.

Conservation is vital in a world that consumes more energy as it grows. Last week, the California Public Utilities Commission approved a framework to guide the long-term energy efficiency programs for its gas and electric utilities. The plan will require that all new homes produce energy equal to or greater than what they consume by 2020. Commercial structures have until 2030.

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