Despite failing miserably in their prior $8/MMBtu gas price predictions for this summer and fall (see NGI, July 5), analysts at Raymond James & Associates said in their “Stat of the Week” that once the weather returns to normal, bullish gas market fundamentals will again push prices sharply higher. Meanwhile, other forecasters are saying the opposite, predicting prices will collapse this fall (see related story).

Raymond James analysts raised their gas price forecast for 2005 yet again to $6.65 from $6.25. They also bumped up their crude oil price forecast for the fourth quarter to $40/bbl from $36.

“We believe that the current bearish sentiment in the natural gas market will reverse by the end of the year and year-over-year weather comparisons become more favorable and surplus gas currently available shrinks as a result of continuing declines in supply,” said Raymond James analysts J. Marshall Adkins and Wayne Andrews. “The weather has briefly interrupted an extremely bullish U.S. natural gas price move, but as the weather factor fades gas should resume its strong upward move.

“Assuming traditional BTU parity of 6:1 and our new 2005 oil forecast ($40), fair value for natural gas in 2005 should be between $6.50 and $7,” they added.

The new $6.65 forecast is $1.30 more than the current Wall Street consensus and 37 cents more than the 2005 strip of futures prices on the New York Mercantile Exchange as of Friday’s close. Current near-month futures are $4.57.

However, the Raymond James analysts said they are still considering the possibility that gas prices could be pushed even higher than their extremely bullish projections in the short term to more than $7/MMBtu because of a strong economy, favorable fuel switching ratios and declining domestic supply.

Over the longer term, Adkins and Andrews also have raised their price forecasts mainly due to the ongoing tight supply situation in gas and oil. Their new gas price forecast is $6, up from $5.50. “[A]ssuming only a 2% annual long-term decline in domestic production (versus the 3-4% decline we project in 2004) and an average 2% growth in domestic gas demand we belive there could be a 4-5 Bcf/d supply shortfall (about 6-8% of demand) in 2007 — despite an estimated 250% increase in LNG imports over this time fame. This gap could potentially widen further to 9-10 Bcf/d by 2010 under the same assumptions.” Their long-term crude oil forecast is $35/bbl, up from $30.

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