Two new Gulf of Mexico storms could threaten offshore natural gas production in the near future, and “blistering heat” over much of the United States in the past six weeks has increased cooling demand — two factors that could sustain high natural gas prices going forward, energy analysts said Monday.

Tim Evans, an analyst with IFR Markets, said in a note to clients that natural gas was up “on worries that storm activity developing from the Bay of Campeche to the Cape Verde Islands will threaten production in the Gulf of Mexico at some point in the near future.” A tropical depression over Mexico’s Bay of Campeche was upgraded from a tropical wave on Monday by the National Hurricane Center.

Fimat USA analyst Michael Fitzpatrick said the six-week heat wave over most of the country was increasing cooling demand and shrinking gas supply, causing “contraction to deficit levels.” He expects the Energy Information Agency on Thursday to report another “unusually low” addition to gas storage for the past week. To achieve a “comfortable” 3.2 Tcf by Nov. 1, Fitzpatrick said that weekly storage injections need to average about 62 Bcf.

Meanwhile, Raymond James & Associates, which has been forecasting record high gas prices in response to the high oil prices, said that to date, it remains “virtually impossible to shoot any holes in the bullish energy outlook.” However, analysts admitted that they are “mildly concerned” about possible higher-than-normal oil inventory builds over the next six to eight months.

Raymond James analysts J. Marshall Adkins and James Rollyson reviewed oil prices in their latest energy note, however, they have been forecasting natural gas prices to mirror oil prices at a 6:1 ratio (see Daily GPI, Aug. 12).

“Given the relatively high current oil inventories, such a contra-seasonal inventory build could drive oil prices down to the level where OPEC is forced to once again cut production and maintain a floor on oil prices. If our oil model is anywhere near being correct (and we emphasize the word if), then the global oil oversupply situation becomes particularly acute in the first quarter of 2006. So far, the current reasons to own energy stocks far outweigh the one potential reason not to own the stocks,” Adkins and Rollyson noted.

The analysts joked that “being employed as an energy analyst over the past decade has induced a unique paranoia that seems to flare up whenever the group is doing well. There is a flashing light in the distance. We are just not sure whether or not it is a green light or a red light. Over the coming months we will be closely watching oil inventory changes to get a clearer sign that either supports or dismisses the case for an over-supplied oil market this winter.”

The analysts noted that with energy prices and energy stocks hitting all-time highs, the “ghosts” of the downturns in 1998 and 2001 “are very clear in almost every energy investor’s mind. We are no different. Over the past year we have spent much more time looking for the things that could go wrong than we spent looking for the things that are going right.”

However, the Raymond James analysts said they are “still convinced that the bullish fundamentals far outweigh the potential negatives.”

Adkins and Rollyson said they could not recall a period when the oil supply/demand variables driving the inventory numbers were less certain. “We are seeing more mixed signals and uncorrelated data points than we have ever seen in the global oil markets. This creates a very different forecasting environment from many of our prior fundamental calls where we have been very bullish (such as our natural gas call in June) or bearish (such as our temporary group downgrade late last fall).”

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