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Prices Fall Despite Tropical Storm Heading to Gulf

Even with some offshore production cutbacks seemingly imminent, cash prices dropped at nearly every point Thursday. Traders cited the previous day's screen weakness and moderating weather trends either already under way or in the forecast as reasons for the softness. One also noted that Tropical Storm Arlene was expected to have relatively little impact on Gulf Coast supplies.

Most of Thursday's market downturn was in double digits, but overall declines ranged from the vicinity of a nickel to around 30 cents. The West tended to have most of the smallest drops after PG&E lifted a high-linepack OFO that had been in effect Wednesday and Thursday.

Transwestern in West Texas defied the general trend with flat numbers after having recorded Wednesday's biggest decline of about a quarter. Transwestern issued an OFO for the second day and said it had reduced volumes to two GulfTerra delivery points in the Waha area to preserve system integrity.

Tropical Depression One got the distinction of becoming the 2005 Atlantic hurricane season's first named storm little more than a week after the season officially began. As of 5 p.m. EDT Arlene's center was about 115 miles south-southeast of the western tip of Cuba and was moving north at nearly 8 mph, the National Hurricane Center (NHC) said. It was pelting western Cuba with heavy rains and wind gusts. NHC's latest projection of Arlene's path had the storm making U.S. landfall slightly west of Alabama's Mobile Bay.

From phone contacts and news reports, NGI learned that ChevronTexaco, Total, BP, Murphy Oil and Apache were among producers who had begun evacuating nonessential personnel from platforms in the eastern and central Gulf of Mexico (see related story). No shut-ins were known as of deadline Thursday, but according to the Dow Jones newswire, Total planned to halt production Friday at three sites.

A spokeswoman said ExxonMobil, a major operator of Mobile Bay oil and gas facilities, had initiated what it called a "Phase One hurricane alert" for eastern Gulf and Mobile Bay platforms. "That means we're closely monitoring the storm and preparing facilities" for intense rain and wind, she said. ExxonMobil had not made any evacuations Thursday, but was not sending any more nonessential workers out to platforms in the above areas, she added.

ChevronTexaco expected to have gotten about 600 nonessential personnel from platforms in the central and eastern Gulf by Thursday evening, a spokesman said. More evacuations may be made if the weather deteriorates further, he said.

The Energy Information Administration estimated that 112 Bcf was injected into storage during the week ending June 3. The volume was considered bearish since it was at the high end of prior expectations. However, following an initially bearish reaction, futures traders apparently decided to reconnect with oil market influences. The natural gas screen ended the day up nearly a nickel, as crude oil for July delivery soared nearly $2 to settle above $54/bbl, with traders reportedly still concerned about fourth quarter heating oil supplies and also nervous about Arlene's approach to eastern Gulf of Mexico production facilities.

A Gulf Coast marketer observed that the west side of a tropical storm usually sees the mildest conditions, so since Arlene was expected to move along the eastern edge of the Gulf production area, it should cause little if any damage to offshore infrastructure. The Weather Channel helped reinforce this by saying, "While some minor strengthening is possible in the Gulf, the main impact of this system appears to be the threat of heavy rainfall, especially north and east of where the center tracks."

The marketer said that as of Thursday afternoon he hadn't gotten any notices of curtailment of nominated offshore gas. He also commented that although prices were "pretty soft today relative to Wednesday," they remained well above first-of-month indexes. Other than Florida, which Arlene's rains are likely to be cooling off Friday, he was not seeing any lessening of power generation load in the South. He saw it as "a coin flip" on whether price softness will continue Friday, saying it largely depends on whether the storm disrupts supplies to any significant extent.

A Northeast trader was less ambiguous, saying he expected prices to keep falling Friday as hot weather starts to moderate and the usual weekend drop in industrial load influences the market. He reported not hearing "all that much talk" about Arlene Thursday. He attributed the cash softness mainly to Wednesday's screen decline and the fact that heat levels were starting to dissipate a little in the Northeast.

Citigroup analyst Kyle Cooper also maintained a bearish outlook for prices. "The tropical storm will likely result in some production curtailment," Cooper said in a Thursday advisory, "but the overall effect will likely be net supply/demand bearish as the rain and clouds cool temperatures and reduce electricity demand more than supply is restricted. It always amazes me how few people consider the lost demand effects of a tropical storm."

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