Even with the hurricane-related disruptions from Gustav and Ike in September, prompt Henry Hub prices have remained below $8/MMBtu since the end of August, and as Gulf of Mexico production slowly recovers, supply strength elsewhere, economic weakness and a warm winter may pull winter gas prices below $7 by early next year, a team of energy analysts predicted Tuesday.

All signs point to supply strength and demand weakness in the months ahead, and the U.S. natural gas market will rely on storage draws for a smaller proportion of winter supply than in previous years, Barclays Capital energy analysts wrote in an Energy Special Report, “A Bearish Winter Awaits Natural Gas.” The report, written in part by former Lehman Brothers energy analysts, was put together by Barclays’ Edward Kott, Daniel Guertin and Edward Morse. (London-based Barclays plc purchased Lehman’s advisory businesses, including its trading and research arm, in September (see Daily GPI, Sept. 23).

The Barclays analysts forecast gas balances for the upcoming winter in the Lower 48 states, and the balances “demonstrate that we anticipate relatively low storage draws through the winter. Most notably, as Gulf of Mexico supply continues to recover [from hurricanes Ike and Gustav], we expect net storage injections to continue well into November rather than the end of October.”

In 2007, noted the analysts, net gas injections continued into the first week of November. This year “there may be an additional two or three weeks of injections. We expect November to yield nearly 70 Bcf of net additions to storage, which would bring peak storage roughly equal to last year’s record 3.55 Tcf peak and possibly higher.”

The Barclays analysts expect to see a net storage draw of 1.59 Tcf from November through March 2009, which would be well below last winter’s 2.31 Tcf draw.

“Combined with record or near-record peak storage in November, this indicates end-March inventories of 1.9 Tcf — a full 200 Bcf above the previous high storage mark coming out of the heating season,” noted the Barclays team. “Of course, an unexpectedly cold winter would prompt larger storage draws through March. But under our current weather assumptions, the U.S. gas market will head into the 2009 injection season with a running start and sustained supply strength that will conspire to push prices lower during the summer. Unless a very cold winter is followed by a very hot summer, the market will see falling prices and discussions of whether producers will curtail supply by the end of next year.”

The stock market declines, which extended across the energy sector on Monday, brought the market more in line with Barclays’ view for the next two quarters, said the analysts.

“Despite Monday’s $0.523/MMBtu plunge of the New York Mercantile Exchange prompt contract to $6.835, we still believe that natural gas has more room to fall through the fourth quarter, particularly should the market see net injections into the second half of November, as we anticipate,” said the analysts. “However…we foresee continued price weakness through 2009 as a widespread supply response to lower prices is likely to be delayed due to producer hedging and lags between drilling plans and when gas arrives in the market.”

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