MARKET WATCH Energy prices soar as natural gas, crude, gasoline hit highs

Sam Fletcher
Senior Writer

HOUSTON, May 4 -- Energy futures prices soared Monday, with crude, gasoline, and natural gas hitting record highs on the New York Mercantile Exchange in the face of mounting fears of possibly short supplies this summer.

Gasoline for June delivery shot to a record close of $1.262/gal, up by 2.66¢ for the day after trading as high as $1.268/gal Monday on NYMEX. The near-month gasoline contract had set new price records in six of the seven previous trading sessions in that market with US inventories at critically low levels ahead of the traditional start of summer demand on Memorial Day, May 31.

With refinery bottlenecks contributing to that shortage, US consumers this summer likely will pay the highest gasoline prices seen in years, analysts said.

The June heating oil contract jumped by 2.3¢ to 96.79¢/gal Monday on NYMEX, while natural gas for the same month soared by 36.9¢ to finish at $6.23/Mcf, after hitting a new contract high of $6.25/Mcf during that session. As a result, "the door is open for a possible test of the weekly resistance crossing at $6.345[/Mcf] later this month," said analysts Tuesday at Enerfax Daily.

Natural gas market
"With early heat in the West and forecasts for a hot summer raising concerns about natural gas supplies, mild weather across most of the nation didn't seem to matter" during Monday's trading, Enerfax analysts said. "Despite a huge inventory surplus [compared with] last year, traders said talk about hot summer forecasts, a busy hurricane season, and tight coal supplies continued to keep the bulls running, particularly with crude oil still strong. But with [natural gas] storage inventories fairly high, many expect mild spring weather early this month to limit further cash gains, despite longer-term concerns about sagging production and dwindling imports from Canada."

"Based on normal temperatures and no production interruptions due to hurricanes in the Gulf of Mexico, our models reveal that minimal [300 MMcfd] industrial demand will need to be backed out this summer in order to refill storage by the start of next winter," said Robert S. Morris, Banc of America Securities LLC, New York, Monday. However, he said, "A warmer-than-normal summer is now widely forecast, along with another active hurricane season, which could then push natural gas prices to a level necessary to 'back out' additional industrial demand or prompt switching to distillate fuel oil."

Oil prices climb
The June contract for benchmark US sweet, light crudes escalated by 83¢ to $38.21/bbl Monday, the highest settlement price on NYMEX since Oct. 16, 1990. The July contract soared by 91¢ to $37.99/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., climbed by 85¢ to $38.23/bbl.

The International Petroleum Exchange in London was closed Monday for a public holiday. The average price for the Organization of Petroleum Exporting Countries inched up by 14¢ to $34.13/bbl.

Traders worry that US crude prices could "shoot through the roof" for fear of shortages if terrorists attacks on Middle East oil facilities continue, analysts said. Crude prices are likely to remain at historically high levels because of political unrest in Iraq and Saudi Arabia, they said.

"Even though the consensus outlook is still that WTI spot prices will drop below $30/bbl in the second half of 2004, we believe that full-year projections have to continue to rise, especially given the persistent strength in the second quarter," said Morris. "In fact, similar to last year, the surprise may still be that oil prices don't pull back as much as the consensus is expecting."

The biggest risk to current crude price levels, he said, "is a sharp slowdown in the Chinese economy, which accounts for roughly 1/3 of our 2.6% projected increase in global crude oil demand this year," he said.

Meanwhile, Obaid bin Saif Al-Nasseri, UAE's energy minister, said OPEC members may decide to increase their production quotas in the third quarter to calm market fears and replenish stocks in industrialized countries.

He acknowledged that some members have proposed hiking OPEC's price band above the $22-28/bbl set in 2000. "However, they didn't officially float these proposals and they may be raised at the next OPEC meeting on June 3 in Beirut," he said.

Contact Sam Fletcher at [email protected]