12-10-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (12/7) energy settlements:
January NYMEX gas closed: $7.155
Winter (Jan-March ‘08): $7.22
The NYMEX one-year strip $7.54, 2-year strip $7.90, 3-year $8.03
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.86, Last Summer: $6.79
Last winter: $7.16
Crude oil: $88.28, #2 oil $2.504

The historical tendency for natural gas this week is for prices to increase. With warmer than normal weather and storage so full that many storage holders are already beginning to baseload it into their supplies to make sure they get it out, it’s hard to paint a bullish scenario. If it does rally, it will be because commercial end users are buying from large speculators who are building an impressive short position. Commercial end users owned 354,480 contracts at the end of November but currently own 402,177. Why the utilities, etc want to buy now is a mystery to me and because we don’t have transparency into OTC markets, I can’t be sure that they haven’t placed offsetting bets on other exchanges, but since the end of October NYMEX open interest has increased from 741,551 contracts to 841,926 while prices have declined more than a dollar, which means that there are more sellers in the market than there are buyers, and I want you to hold off on being a buyer yourself until we see lower strip prices. Current prices still carry too much premium to the 2 and 3 year averages.

Looking ahead, Indonesia’s state-owned oil company has decided to reduce its annual supply of LNG to Japan, the world's biggest LNG importer, from the current 12 million metric tons to 2-3 million tons, and reduce overall LNG exports from 15 million tons down to 5, as its production goes into greater decline. The reduction will deal a serious blow to Japan’s long-term energy security at a time when global LNG demand is surging.

In a nearly related story, Panama will build two new three-chamber locks at the Atlantic and Pacific ends of the canal that are large enough to allow the passage of LNG tankers as large as 150,000 cu m. The $5.2-billion project will be completed by 2014. In its current configuration, the canal can accommodate only the 17 LNG tankers ships that are 100,000 cu m or smaller. The enlargement could open up new trading options for Trinidad, Chile, Japan, Korea, Qatar …………..the world.


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