Washington (Platts)--14Aug2007

US energy markets are potentially at risk of a sharp downturn in prices
if the current concerns over subprime mortgage rates spread to other areas of
the economy, Wachovia economist Jason Schenker said in a conference call with
investors Tuesday.

     Noting Wachovia dropped its growth forecasts for US gross domestic
product to 2% from prior estimates of 2.2% for 2007 and to 2.9% from 3.1% for
2008, Schenker said, "slower [economic] growth means that energy prices are
likely to be dampened."

     Schenker said that if global economic growth slows, demand for
commodities from industrial and manufacturing sectors will decline as well. In
addition, a slowing economy will "drain liquidity from some of the speculative
and investment money in the marketplace," he said in an accompanying report.

     Schenker said crude oil is currently at greater risk for a downside move
than natural gas, as speculators hold a large net-long position in crude oil
futures. Should funds be forced to liquidate those positions for cash, it
could result in a steep downturn in price.

     For natural gas, funds presently hold a large net-short position, he
said. "If they were to want to exit those positions rapidly, they would need
to short cover," Schenker said. 

     However, he said if US and global economic markets slow more rapidly than
forecast, the upside risk for gas "would likely be transitory," resulting in
an initial spike in price before a return to the downside.

     The aggressive rate of gas storage injections for much of 2007 has lent
overwhelming, fundamental pressure to prices, Schenker said. Subsequently,
"any run-up in price would likely be a technical move," he added.

		--Jessica Marron, jessica_marron@platts.com

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