Highs

Despite natural gas storage levels sitting near record highs, natural gas futures prices remain lofty compared to past years, likely due to elevated petroleum prices and fear-based premiums attached to the upcoming hurricane season.

With working gas levels in storage at record highs, further declines in spot natural gas prices can be expected as the year wears on, according to FERC’s Office of Market Oversight and Investigations (OMOI).

Canada said Thursday that thanks to Hurricanes Katrina and Rita, the value of Canada’s exports and imports both hit record highs in September due to soaring outbound shipments of natural gas and inbound shipments of crude petroleum. Exports jumped 2.8% to a record C$39.8 billion, while imports rose a more moderate 1.4% to C$32.7 billion.

With modest increases in cooling load starting to return in sections of the South and West and widespread triple-digit highs continuing to plague the desert Southwest and Midcontinent, a solid majority of points were in rally mode Wednesday. Gains ranged from a couple of pennies at Henry Hub to about 20 cents.

After soaring to new 2005 highs following the release of fresh storage data (95 Bcf withdrawal) on Thursday, the natural gas futures market chopped lower late in the session to end the day on a negative note. At $7.238, the April contract finished the session more than 14 cents below its $7.38 top but still up 4.6 cents on the day. Looking ahead, market watchers wonder whether the recent gains in both natural gas and crude futures can be sustained in the short to medium term.

With gas prices moving up to highs near $10/MMBtu in the Northeast last week in response to the first real blast of winter weather, Philadelphia-based PECO Energy announced several significant improvements in its distribution infrastructure and some adjustments in its supply and gas transportation portfolio this winter. Eric Helt, manager of gas acquisition and planning, said the adjustments are designed to help it guard against price volatility.

Gas storage levels could enter the winter heating season at record highs, but EnCana Corp. told FERC this week that high price differentials between injection and withdrawal season months show that the gas market is demanding that even more storage capacity be added to the marketplace. There are indications that storage capacity may be becoming inadequate to handle a colder-than-normal winter, EnCana said.

Breaking a five-session series of lower-lows and lower-highs, the natural gas futures market turned tentatively higher Wednesday as continued and steady end-user buying was enough to meet fund and commercial selling. Modest gains were seen throughout the six-year strip at Nymex and the September contract eked out a 0.9-cent advance to close Wednesday at $5.382.

The frigid January weather that gripped the entire nation, particularly the Northeast, is “diminishing the likelihood” of cumulative heating costs for this heating season finishing below last winter’s high levels, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for February.