Suez Weekly Market Monitor
ERCOT saw some early week gains, but this soon gave way to a continued decline for the remainder of the week.
Northeast power curves also saw an early week gain but that soon gave way as the week continued and gas prices dropped.
PJM power prices in the east and the west saw an early gain but that soon changed and prices declined prices for the remainder of the week.
Natural Gas Market
Natural gas began the week on a steep incline but gradually declined as the week continued.
Natural Gas Storage: Gas in Storage Decreased 1 Bcf
Working gas in storage was 3,449 Bcf as of Friday, November 17, 2006, according to EIA estimates.
Oil Shares Signal a Rebound
Oil stocks are signaling that crude prices may rebound to a record in 2007.
Shares of Nymex Holdings Inc, owner of the biggest energy exchange, have more than doubled since their Nov. 16 sale, the best performance for any initial public offering this year. The value of energy industry IPOs in 2006 is more than double that of last year, reaching $7.4 billion after KBR Inc., the builder of liquefied natural gas plants and refineries, raised $473 million Nov. 15.
Benchmark U.S. crude oil is likely to average $70 a barrel next year, according to Dallas hedge fund manager Boone Pickens. Economist Ed Morse at Lehman Brothers Inc., the fourth-largest U.S. securities firm, predicts $72. Either would top the average price for New York oil futures so far this year, $66.73 a barrel, and set a record.
“I keep thinking we're right at the bottom on oil,” Pickens, who has correctly predicted rising energy prices for the past three years, said in a Nov. 22 interview. “I don't see why the run is over if the global economy continues to grow.”
“People have been beating up on energy stocks lately, but there aren't a lot of other sectors out there making that kind of money,” said David Foley, who helps manage $600 million at Grove Creek Asset Management in New York.
Investment strategists including James Paulson of Wells Capital Management in Minneapolis said this summer that energy markets had peaked and were poised to collapse.
Crude oil dropped as much as 30 percent from a record $78.40 a barrel on the New York Mercantile Exchange in July to its low this month. Natural gas futures, falling all year as inventories of the fuel swelled, reached a four-year low in September. Gas has almost doubled in the two months since then.
When the prices for oil, fuels and natural gas start to rise may depend on how quickly winter weather spreads across the U.S., Pickens said. So far, warm temperatures have kept demand for heating fuels in check.
As recently as July, when both oil and natural gas were falling, Halliburton Co. had expected to shelve the sale of its KBR unit because of a lack of demand. Instead, the IPO was completed with shares selling at $17, the top of the range the company predicted, and gaining 22 percent in their first day of trading.
“The outlook is very strong,” said Jason Putman, an analyst who helps manage $60 billion at Victory Capital Management in Cleveland. Putman's firm bought shares of KBR on optimism it will benefit from a building boom in LNG terminals. “The next three to five years look about as good as they ever have for LNG, and for energy in general.”
Oil producers and refiners have been unable to keep pace with rising global demand for crude oil and refined fuels, and prices have doubled in the past three years.
“There are no clear signs that enough capital has yet been deployed in this sector to alter fundamentally today's tight conditions,” according to a note to clients from Morse, Lehman's chief energy economist.
“A generation of underinvestment in the sector lies behind recent capacity constraints,” Morse wrote.
Energy companies are selling shares to finance new projects, including Reliance Industries Ltd., owner of India's largest refinery. Reliance sold stock in its Reliance Petroleum Ltd. unit earlier this year, raising $601 million for construction of a 580,000 barrel-aday refinery.
“We are in a good oil and gas market and investors are trying to take advantage of that,” said David Frischkorn, a managing partner at Dahlman Rose & Co., a New York-based brokerage that specializes in energy and shipping. “Cash flows have been very, very good and will continue to be good.”
The increase in energy IPOs reflect confidence that enough oil and gas can be found to exploit today's high prices, said Daniel Yergin, chairman of energy consulting firm Cambridge Energy Research Associates and author of “The Prize,” the Pulitzer prizewinning history of the oil industry.
“This is a growth period as the industry rebounds from the contraction it went through five or six years ago,” he said.
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January 23rd, 2020
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