Salomon Smith Barney (SSB) predicts there will be 405 Bcf moregas in storage at the end of the winter heating season on April 1than the average level of stored gas at the same point over thepast four years. The investment firm raised its forecast forseason-ending storage levels by 72 Bcf last week to 1,306 toreflect lower-than-expected withdrawals for the week ending Feb. 5and 20% warmer than normal weather expected for the week endingFeb. 13. The forecast would put storage levels on April 1 about 247Bcf higher than levels at the same point last year. According tothe American Gas Association (AGA), storage levels currently are428 Bcf higher than they were at the same point last year.

“If our forecast overhang remains this large we would expectproducers to lower prices in order to induce additional consumptionand allow storage withdrawal rates to pick up,” SSB said in itsweekly gas storage forecast. SSB has factored about 40 Bcf ofadditional withdrawals into its calculations of season-endingstorage levels to reflect producers’ efforts to encourage areduction in the storage surplus through spot price cuts.

Five percent colder than normal temperatures for the remainderof the heating season would boost demand and lower inventories byan additional 70-75 Bcf, according to SSB. “If this occurs, wewould expect to end the season at 1,234 Bcf, 175 Bcf above lastyear’s level.”

Because of the size of the surplus and expected increases inCanadian imports, SSB doesn’t foresee any price strength until latethis year. The investment firm is predicting prices will average$2/MMBtu in 1999 and $2.35 in 2000.

SSB is predicting AGA will announce a 107 Bcf drawdown for lastweek.

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