Tuesday, August 01, 2006
A Blip, or Beginning of a Trend?
by Michael Vickerman, RENEW
Petroleum and Natural Gas Watch, Vol. 5, Number 4
Unbeknownst to many Americans, the demand for natural gas during the winter months, with rare exceptions, greatly exceeds real-time domestic extraction volumes. This gap is overcome by tapping into the surplus natural gas injected into vast underground caverns during the warmer months. Historically, storage volumes increase from April through October and decrease during the heating season (November through March).
The most recent storage update from the Energy Information Agency, covering the week ended July 21, packed an unwelcome surprise, when it reported a net withdrawal of natural gas to the tune of seven billion cubic feet (bcf). According to AmericanOilman.com, this was the first time this decade that EIA reported a weekly decline of natural gas in storage inventories occurring between mid-April and mid-October. That week in July typically sees a build of 61 bcf.
Even though current storage volumes are running 20% above historical norms, this surprise development pushed spot market prices above the $7.50/MMBtu mark for this first time in four months.
At first blush, the market’s reaction seems hasty and overwrought. Even if weekly injections between now and Thanksgiving lag behind historical volumes by 50%, there still would be more than enough natural gas to ride out a severe winter. So why are energy traders and speculators so quick to bid up prices?
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