Tuesday, September 16, 2008

Natural Gas Prices Holding After the Storm

SAN FRANCISCO (MarketWatch) -- Oil futures closed below $100 per barrel Monday, at their lowest level in seven months as problems in the financial sector fueled concerns over a recession and as assessments of Hurricane Ike showed limited damage to key refineries in the Gulf of Mexico.

But natural-gas prices recovered from a low near the $7-per million British thermal units mark, as most of the energy production in the Gulf remained shut.
"I think oil is caught in a paper bear trap at present, which is continuing to force the price down, despite supply disruptions and general uneasiness in the geopolitical picture," said Neal Ryan, a managing partner at Ryan Oil & Gas Partners.

But "eventually as we head into winter, the lack of oil, gas and natural-gas additions to storage in the last month will show up in higher prices down the road," he said in emailed comments. "This is already being reflected in the bounce back of natural-gas prices."

Crude oil for October delivery fell $5.47, or 5.4%, to close at $95.71 a barrel on the New York Mercantile Exchange.
It dropped to a low of $94.13 earlier Monday in electronic trading on Globex, oil's weakest intraday day level since mid-February. October crude was at $94.95 on Globex as of 3:30 p.m. EDT.
"We are in the midst of a paramount shift in the financial and banking system the likes of which we have never seen," said Zachary Oxman, a senior trader at Wisdom Financial.

"Crude is taking a pounding off of two things: the continued de-leverage of risk and the fear of a demand slowdown for the product as the recession we are in gets deeper and longer," he said in emailed comments.
Hurricane Ike also apparently failed to cause as much damage to energy facilities in the Gulf of Mexico as the energy markets expected.

"It's an expected relief sell-off after refineries saw less damage then expected -- also because the refining slowdown will not require so much crude," said Kevin Kerr, Global Commodities Alert at KerrAlert.com, in emailed comments.
Prices for petroleum products finished lower for now. October reformulated gasoline fell 20.8 cents, or 7.5%, to end at $2.5614 a gallon and October heating oil dropped 14.8 cents, or 5%, to end at $2.7912 a gallon.
Natural-gas prices rebound Despite oil's steep price decline Monday, natural-gas futures managed to bounce off their low.

Natural gas for October delivery closed at $7.374 per million British thermal units on Nymex. That's up a minor 0.1% for the session, but well above the day's intraday low of $7.07.
Support for natural-gas prices "may have something to do with the total loss of 10 or 11 offshore platforms," said Beth Sewell, a managing partner at Quantum Gas & Power Services, citing news reports.
Hurricane Ike destroyed at least 10 offshore oil and gas platforms in the Gulf, the Associated Press reported Monday.
But oil prices likely aren't finding price support based off that news because the market is actually "a lot better off" than in the aftermath of the 2005 hurricanes, said Sewell. A total of 113 platforms were destroyed and 52 suffered significant damage in the wake of hurricanes Katrina and Rita in 2005, according to the U.S. Energy Department.
Just about all of the oil production in the Gulf has been shut-in, as well as about 93.8% of natural-gas production, the U.S. Minerals Management Service said in a report issued Monday.

"Damage to refineries and chemical plants appears to be minimal," said Charles Perry, president of energy-consulting firm Perry Management. "The big problem now is none of the ones in the Houston area have power, and it may be a week or more before they all have power back on -- then allow another week for them to get back to full production."

All of this bodes "very poorly for gasoline supplies but even worse for heating oil," said Kerr. "It is going to be a long, cold and expensive Winter for many Americans."

Still, "refineries, all of which are around Galveston Bay or the Houston ship channel, were spared from all but minor damage by the fact that the eye of the hurricane went up Galveston Bay, and did not push the storm surge into the bay that had been expected," Perry said.

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