Better than expected gas prices during the first quarter have prompted Canaccord Adams to boost its 2007 Henry Hub price forecast to $7.50/MMBtu from $7.00/MMBtu, the firm said Friday. Its 2008 assumption of $8.25/MMBtu remains unchanged.

Canaccord analyst Irene Haas wrote that the gas storage surplus "is not as bad as expected" and there are new variables in the market worth watching this summer. The bleak heating season was rescued by a cold February, leaving a 280 Bcf storage surplus over the five-year average as of April 13, she noted.

"While we are heading into the shoulder months with a surplus of gas, the magnitude is less than expected," Haas wrote. "There are a number of variables to look out for this year. On the supply side, we are expecting the deepwater Independence Hub in the eastern Gulf of Mexico to ramp up to 1 Bcf/d at year-end. We could potentially see a few more spot cargoes of liquefied natural gas (LNG) this summer, as the winter has been mild in Europe and the Pacific."

The potential increase in production and imports could counteract Canadian production declines of 500 MMcf/d, she wrote. However, hurricane activity remains a wildcard. "We are hopeful that the supply 'glut' will shrink, but have to be mindful that we are heading into what forecasters predict will be a very active hurricane season, and a surplus can easily turn into a deficit depending on storm intensity," Haas wrote.

Further, Haas wrote that the firm expects oil and gas price volatility to continue through the second quarter.

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