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Overview: Tuesday, January
22, 2002 Spot prices at many market
locations across the country finished the week on Friday, January 18 with sharp
decreases that reversed gains from earlier in the week. Prices at the Henry Hub declined 2 cents per
MMBtu compared with the previous Friday. On the NYMEX, the settlement price of the futures contract for February
delivery at the Henry Hub settled at $2.236 per MMBtu, up roughly 3 cents over
the previous Friday. A trend towards
cooler temperatures across most of the country likely contributed to the modest
rally in prices early in the week. (See Temperature Map) (See Deviation Map) However, expectations of warmer temperatures early this week and
lighter demand over the holiday weekend along with a-year-over-year storage
differential of over 500 Bcf from
normal (as measured by the 6-year average) likely reversed the price rally. The spot price for West Texas Intermediate
(WTI) crude oil decreased by over 8 percent, falling to $18.02 per barrel or
$3.10 per MMBtu.
Prices: Spot
prices at many locations throughout the country climbed early in the week,
before declining after mid-week. Expectations of mild temperatures in the next week and light demand
during the holiday weekend resulted in price declines between 8 and 30 cents on
Friday at market locations across the country. The spot price at the Henry Hub finished the week at $2.29 per MMBtu,
roughly 2 cents or nearly 1 percent less than the previous Friday. Nevertheless, prices in the Northeast, Rocky
Mountain, and California regions ended the week higher than the previous
Friday. Spot prices at the New York
citygate exhibited the most variability climbing 24 cents on Wednesday before
declining throughout the remainder of the week, and posted a net gain of 7
cents per MMBtu over the previous Friday to close at $2.72. At the
NYMEX, the settlement price of the futures contract for February delivery at
the Henry Hub also climbed early in the week peaking on Wednesday, January 16
at $2.394, and declining in each of the ensuing trading days to end the week at
$2.236 per MMBtu, up roughly 3 cents or almost 1.5 percent greater than the
previous Friday. The settlement price
of the February contract varied in a tight range of only about 14 cents per
MMBtu. The settlement price for near
month delivery continues to trade below the Henry Hub cash price, although on
Wednesday, the February futures differed by less than one cent from the cash
price. Cash prices have exceeded the
near-month futures contract settlement price for all but one day in the almost
4 weeks of trading since December 26. This price pattern is consistent with a market belief that prices will decline
through the heating season. However,
prices are expected to increase thereafter, as the NYMEX prices for deliveries
through 2002 rise consistently through January 2003.
Storage: Net withdrawals
of natural gas from storage were 137 Bcf for the week ended January 11,
according to American Gas Association estimates (AGA). Despite heating degree
days that were roughly 23 percent below normal across much of the United
States, net withdrawals for this week were nearly 5 percent greater than the
6-year average during the report week. Working gas stocks were 2,576 Bcf, or 1,078 Bcf greater than stocks last
year and 556 Bcf greater than the 6-year average for the same report
week. The inventory overhang appears to
have contributed to the relative price differential between the spot price and
the futures price. Spot prices at the Henry Hub averaged about 9 cents higher
than the settlement price of the futures contract for February delivery in at
the Henry Hub, during the week ended January 11. This likely provided suppliers with an incentive to withdraw gas
from storage despite the warmer than normal temperatures. (See
Storage Figure)
Other Market Trends: Gas drilling activity. Rigs drilling for natural
gas numbered 722 according to the Baker-Hughes rig count report released on Friday,
January 18. This is an increase of 3 rigs, or less than 1 percent from the
prior week. Despite the modest increases last week, the number of rigs remains
close to its lowest level since July 2000 when rigs numbered 716. Since reaching its record-setting peak of
1,068 rigs during the week ended July 13, 2001, rigs drilling for gas have
declined at an average weekly rate of roughly 1.3 percent. The rig count is
almost 19 percent below the level recorded during the same week last year. Despite the recent declines, rigs drilling
natural gas prospects remain at historically high levels. Compared to yearly averages, the count of
722 rigs drilling gas prospects is below only the record level of 954 in 2001. However, continued declines in drilling for
natural gas prospects could jeopardize gas supplies in the longer-term. Summary: Spot prices finished the week on Friday, January 18
with generally only small changes from the previous Friday. On the NYMEX, the settlement price of the
futures contract for February delivery at the Henry Hub settled at $2.236 per
MMBtu, up roughly 3 cents over the previous Friday. Net withdrawals of natural gas from storage were 137 Bcf for the
week ended January 11 despite unseasonably warm weather. The number of rigs climbed by three last
week, but remains almost 19 percent less than last year’s level. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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