Hurricane activity and the credit crunch caused by subprime mortgages are likely to dominate both oil and natural gas pricing in the next two months, according to a new report by a Winchester, MA-based energy research firm.
“Hurricane activity is expected to be above normal this year but with the exception of Hurricanes Katrina and Rita, hurricanes have only had a modest impact on prices. The credit crunch could force liquidation of positions in energy markets to raise cash. Natural gas prices may be driven up because of large short positions being liquidated but oil prices are more likely to be subject to downward pressures,” said Ron Denhardt, vice president of natural gas services for Strategic Energy and Economic Research Inc.
Barring significant loss of production from hurricane activity, Henry Hub natural gas prices could decline below $5/MMBtu in September or October, while a hurricane on the scale of Katrina or Rita could drive prices well above $10/MMBtu, he noted.
Assuming normal weather and only a 50 Bcf production loss due to hurricane activity, working gas in storage is expected to end October at 3.5 Tcf compared to 3.45 Tcf last year and a five-year average of 3.27 Tcf, Denhardt said. Because of the high level of working gas storage last year, Henry Hub prices averaged $5.30/MMBtu in September and October.
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