Oil Prices - WTI
The front month April contract for West Texas Intermediate crude oil (WTI) ended the week at US$81.50 a barrel, up $1.84 on last week’s close. That’s close to a 17 months high. WTI traded above US$80.00 a barrel several times on the NYMEX over the last five sessions before closing above this technically important price point on Friday.
Economic data released in the US last week suggested the economy was on the mend. The market expected this to lead to an uptick in demand for energy.
Oil Prices - Tapis
Tapis, an Asian marker crude for Australasian producers, closed Friday at US$83.36 a barrel, up US$2.46 over the week. For most Australian producers the Tapis price represented an oil price of A$92.60 a barrel at US$0.90 cents to the Aussie dollar.
US Natural Gas Price
The price of the April natural gas contract (the Henry Hub benchmark) in the United States ended Friday at US$4.59 an mcf, US$0.22 lower than last week’s close. The Henry Hub spot price finished down at US$4.55 an mcf.
According to the US Energy Information Administration working gas in storage as of 26 February was 1,737 Bcf, implying a net withdrawal of 116 Bcf for the report week. Working gas inventories are 71 Bcf less than year-ago levels and 21 Bcf above the 5-year average.
The Coming US Gas Glut
A number of energy industry “experts” are saying unconventional shale gas plays in the US will make the US self sufficient in natural gas. According to some, billions of cubic feet are waiting to come on line. And people like T Boone Pickens are saying US shale gas will change America’s current dependence on foreign hydrocarbons.
While there is no doubt unconventional gas plays, not just in the US but in Europe and Australia as well, will increase the availability of gas, a falling gas price will make the economics of projects less favourable. Remember it costs more to produce shale gas than it does gas from conventional reservoirs.
Bear in mind also that shale gas wells have a disconcerting habit of showing a rapid decline in production. So we are not convinced that shale gas is the solution to the upcoming energy crisis. However as long as the shale gas proponents get air play and media coverage, there will likely be a depressing effect on US natural gas prices.
And that probably means Aussie investors and punters may shy away from Aussie companies in the US that are largely gas plays.