May 6, 2002; Positive Momentum Continues in Commodity Futures

One-year futures for natural gas are priced 28% above the 30-week average, a comfortable margin above the minimum point to indicate a positive trend.  Cash prices at the Henry Hub in Louisiana reached $3.90 on May 1, the highest level in 2002.  Yet Rocky Mountain and San Juan Basin natural gas prices are lagging as we mention in Natural Gas Royalty Trusts, a separate weekly analysis. 

One-year futures for oil are priced 13% above the 30-week average, also a reasonable margin above the minimum point to indicate a positive trend.  At $25 a barrel we are not overly concerned about a war premium keeping the price artificially high.  Hostilities in the Middle East seem unlikely to be resolved soon.

The one-year 3-2-1 crack spread calculated from futures for crude oil, gasoline and heating oil is only 3% above the 30-week average (see chart).  While we are confident that our recommendations of stocks with refining exposure are fundamentally sound, the less robust progress of the crack spread coincides with lagging stock market performance for integrated companies as compared to independent producers.