BY ALEX MILLS
March 22, 2010
While natural gas prices have declined so far this year, crude oil prices have risen to more than $80 per barrel on the New York Mercantile Exchange.
Crude oil futures for April delivery (NYMEX) closed at $82.11 on March 11, rising to an eight-week high. The increase was attributed to a report by the Energy Information Administration (EIA) which revealed that fuel supplies declined as demand had climbed.
Gasoline trading also increased to $2.2851 per gallon on news of gasoline inventories declining 2.96 million barrels to 229 million during the week of March 5. Gasoline demand has increased 1.2 percent this year over 2009.
Crude oil futures are up 80 percent from last year.
Refineries operated at 80.7 percent of capacity last week, down 1.1 percent from the previous week.
However, crude oil inventories remain strong, rising 1.43 million barrels to 343 million.
Crude oil remains in a contango situation with deliveries in September increasing to $84.13 and 12-month deliveries settling at $85.27.
Natural Gas
Natural gas prices, on the other hand, have softened on news of rising inventories. Since March 3, natural gas spot prices fell at most market locations across the lower 48 states, with decreases as much as 11 percent. Prices at Henry Hub declined $0.32 per million Btu (MMBtu), or about 7 percent to $4.44 per MMBtu.
NYMEX contracts for April delivery settled on March 10 at $4.56, falling by $0.20 or about 4 percent from the previous week.
Natural gas in storage was 1,626 billion cubic feet (Bcf) as of March 5, about 1 percent above the five-year average (2005-2009).
Natural gas consumption fell about 12 percent last week. Residental/commercial and electric power markets fell 18 percent and 9 percent, respectively. Despite these declines, natural gas consumption, when compared to a year ago, is up about 9 percent.
Natural gas production remained strong. The drilling rig count has increased for 10 consecutive weeks, and it has risen to 926 across the U.S. That’s a 22 percent increase over a year ago and the highest level since February 27, 2009. However, just two years ago the rig count was 1,606.
EIA expects natural gas prices to increase through 2011 to an average of $5.17 per MMBtu in 2010 and $5.65 in 2011.
Alex Mills is president of the Texas Alliance of Energy Producers.
