May 28, 2008 / 9:13 PM / in 9 years

Canada regulator sees high summer oil, gas prices

CALGARY, Alberta (Reuters) - Oil prices will likely stay near record highs this summer and natural gas is also expected to cling to unusually strong levels due to simmering worries about supplies, Canada’s energy regulator said on Wednesday.

Oil prices should average around $130 a barrel over the next few months, more than double the level of a year ago, due to seasonal demand increase, risks to world supplies, scant spare production capacity, the commodity investment boom, and a weak U.S. dollar, the National Energy Board said.

Because of crude’s surge, Canadians will keep paying unprecedented prices at the gasoline pump, the NEB said.

U.S. natural gas is expected to hover between $11 and $13 per million British thermal units, and will be at the top of the range if there is sustained hot weather in major markets or destructive hurricanes in the Gulf of Mexico, it said.

The slowdown in the U.S. economy and a reduction in fuels demand as a result of high prices could cool oil prices, but the risks of increases are much greater, NEB oil analyst Christian Rankin said.

“Most analysts, including us, would say that there’s little scope for significant moderation of oil prices. Basically what we see today is kind of going to be what happens for the rest of the summer,” Rankin told reporters.

Benchmark West Texas Intermediate crude settled up $2.18, or more than 1.5 percent, at $131.03 a barrel in New York on Wednesday, rebounding from a drop that had been triggered by concerns about economic weakness.

A big factor driving Canadian gasoline prices is this year’s sharp drop in U.S. fuel inventories from a multiyear high in March back to near five-year average volumes recently, he said.

Natural gas markets have been lifted by the need to refill storage facilities across the continent following a cold winter, soaring oil prices and a drop in liquefied natural gas imports, said Paul Mortensen, the board’s technical leader, hydrocarbon resources.

Storage volumes ended the winter about 20 percent below those of 2007 and about 4 percent below the five-year average, Mortensen said.

“Because we came out of winter at the lower level, that raised concerns about the ability to refill storage over the summer as well as meet demand at the same time,” he said.

The recent jump in gas prices has boosted cash flow among Canadian gas producing firms, although it is not known how long it will take for producers to resume busy drilling following a slowdown in activity over the past year.

Canadian gas production is down as much as 1 billion cubic feet a day from a year ago, he said.

Meanwhile, the NEB said it expects electricity supplies to be adequate in all regions of the country this summer.

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