EIA Storage Forecast Pushes Up Gas Prices

Spurred by the United States government statistics supporting apprehension about supply for this winter season, the New York Mercantile Exchange 's January price for natural gas shot up by more than $1 to $8.50 (U.S.) per mmBtu last week.

The report, released today by the Energy Information Administration, showed spot natural gas prices at record high levels, based mainly on apprehension about the supply situation for this winter season, leaving markets "jittery" in the face of increased demand and well below normal storage.

The EIA report backed up those concerns by predicting U.S. gas in storage would decline to 64 bcf from its previous estimate of 89 bcf for first quarter 2001.

Gas prices for U.S. homeowners will average $9.02 per mcf during the fourth quarter this year, up from a previous estimate of $8.68, the EIA said. Residential prices for the first quarter of 2001 are pegged to rise to $9.31 per mcf from the previous call at $8.40.

U.S. gas demand is expected to be slightly higher than previously expected at 5.74 tcf during the fourth quarter. The agency previous estimated demand would be 5.71 tcf.

"The low gas inventory situation, combined with fickle weather, has put the market in a very jittery position," the EIA report said.

But as gas prices moved to record highs, crude oil prices continued retreating.

The NYMEX near-month crude contract was trading at $28.80 per bbl this morning, down 73 cents from Tuesday's close.

"The bull run (for oil) is totally over," said broker Christopher Bellew of Prudential Bache. "Oil seems to have broken the fundamental uptrend," said analyst Steve Turner at Commerzbank .

Traders said financial hedge funds not only had bailed out of oil futures in New York and London, but also were short-selling contracts -- taking negative positions in anticipation of further price falls.

Tuesday's steep decline was triggered by news that the United Nations had presented Iraq a compromise proposal to try and end a deadlock over oil prices that kept Baghdad's crude exports suspended for a sixth day today. Dealers said there were concrete signs that Iraq and the U.N. could end their spat for a resumption soon of Iraqi exports.