Gas market views record-high prices, supply issues as short-term

Washington (Platts)--31Aug2005

The natural gas market expects supply concerns due to US Gulf of Mexico
shut-ins to be short-term if the price movement of the summer 2006 futures
strip on NYMEX compared with the upward price pressure on the front of the
curve is to be believed, according to a Texas-based trader Wednesday. 
     The March 2006 NYMEX gas futures contract settled at $11.82/MMBtu
Wednesday, up $2.24 cts, or about 23% above the April 2006 contract, while
subsequent March-April gaps along the futures strip were closer to 15%. "What
that tells you is that the market is viewing [the current high prices] as a
short-term supply issue," the trader said. 
     "The market is expecting a shortfall of supply" for the coming
winter--particularly given yet unknown hurricane-related damage--explaining
the high October and winter strip prices, he said. "There are still lots of
unknowns," the trader added, as the industry awaits damage reports from the
Gulf Coast. 
     Analyst Kyle Cooper, of Citicorp Global Markets, concurred, saying that
expectations of a colder-than-normal winter and Hurricane Katrina's wrath have
combined to inject high levels of fear into the market regarding a winter
supply short-fall. 
     While the market is engrossed in the near-term effects of Katrina, talks
of an impending recession and overwhelming uncertainty may be dampening prices
for summer 2006, Cooper said. 
     "The bullish argument has always been based on demand outstripping
supply. But there's clearly not a supply issue. There have never been more
petroleum products in the United States. Even the natural gas supply has been
higher than ever until recently. So it's strictly predicated on fear of what
could happen," he said. 
     However, the fear of a recession may undermining the bullish arguments,
he said. The gap between March 2006 and April 2006 could narrow if winter is
warm or if storage is plentiful, Cooper said. There also is less volume being
traded further out the curve, contributing to its relative weakness compared
to the near months. 
     Still, despite the greater gap between winter 2005-6 and summer 2006,
"the whole forwards curve is up recently. Even the back-end is at an all-time
high," the trading source said.

For more information, take a trial to Platts Gas Daily at
http://www.gasdaily.platts.com.

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.