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EIA Lowers '98 Price Forecast, Sees Strong 1Q99

EIA Lowers '98 Price Forecast, Sees Strong 1Q99

The Energy Information Administration has lowered its wellhead price forecast for the year by several percentage points but said wellhead prices during the first quarter of 1999 should show a huge increase (28%) from average prices during this year's warm first quarter.

In its Short-Term Energy Outlook, the EIA said it is expecting average annual natural gas wellhead prices to be about 13% lower this year compared to 1997 levels. The major culprit was the warm first quarter, which led to a 30% price decrease compared with 1Q97, but high storage levels throughout the injection season also played a significant role in the weak market.

"With relatively high inventories, wellhead prices might have been under greater downward pressure this summer had it not been for a prolonged period of extremely hot weather in much of the country from June through August," EIA noted. Electric utility use of natural gas was nearly 20% higher than last year in the second quarter, and the third quarter figures will probably exceed the high levels of 3Q97, EIA said. "On balance, we expect wellhead prices for the third quarter to average about $1.94/Mcf or 8 cents less than one year ago. For the remainder of 1998 and for all of 1999, a normal seasonal price pattern is projected: prices are expected to rise in the winter quarters. However, given recent tendencies in the spot market, we have changed our fourth quarter projection for wellhead prices to be about 10 cents/Mcf lower than our previous forecast." EIA expects prices to average $2.16/Mcf in the fourth quarter and $2.23 in 1Q99.

For 1999, EIA expects a 13% rise in wellhead prices to $2.19, with the bulk of the increase in the first quarter as winter weather is assumed to be normal.

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