MARKET WATCH
Energy prices drop as OPEC members mull postponement of April production cut

Sam Fletcher
Senior Writer

HOUSTON, Mar. 23 -- Energy prices fell Monday among signs that members of the Organization of Petroleum Exporting Countries may postpone their proposed 1 million b/d production cut effective Apr. 1.

Obaid bin Saif Al-Nasseri, UAE minister of petroleum, said Monday that a delay in the implementation of that production cut is among many proposals to be reviewed by OPEC ministers at their Mar. 31 meeting in Vienna. Ministers from the 10 OPEC countries subject to production quotas, excluding Iraq, agreed in February to reduce their official quota to 23.5 million b/d, plus eliminate previous overproduction. The International Energy Agency previously reported that production among OPEC members subject to quotas totaled 25.85 million b/d in February (OGJ Online, Mar. 12, 2004).

Meanwhile, United Nations Sec. Gen. Kofi Annan is expected to name members and terms of a panel to investigate allegations of corruption in the administration of the former oil-for-aid humanitarian program in Iraq. The operation was the largest ever under the UN, purchasing and managing some $46 billion worth of supplies and projects. However, evidence has since surfaced that former Iraqi dictator Saddam Hussein may have bribed some participants to move money into illegal private accounts and weapons programs instead of the humanitarian assistance for which it was intended.

Energy prices slump
The expiring April contract for benchmark US light, sweet crudes fell by 97¢ to $37.11/bbl Monday on the New York Mercantile Exchange. The May position retreated by 57¢ to $37.05/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., lost 95¢ to $37.13/bbl.

Unleaded gasoline for April delivery dropped by 2.64¢ to $1.1291/gal Monday on NYMEX. Heating oil for the same month was down by 2.51¢ to 91.37¢/gal. The April natural gas contract slipped by 3.6¢ to $5.55/Mcf, "with front months undermined by a sharp slide in crude oil prices and milder weather forecasts for later this week, despite an early-week cold snap in the Northeast and Midwest [US]," said analysts Tuesday at Enerfax Daily. "While some heat in the Southwest helped firm cash [spot market natural gas] prices in California and cold in the Northeast buoyed city-gates prices, moderate late-week weather forecasts tempered any bullish sentiment," they said.

In London, the May contract for North Sea Brent declined by 46¢ to $32.80/bbl Monday on the International Petroleum Exchange. Gas oil for April delivery was down by $8.25 to $280.25/tonne. The April natural gas contract lost 6¢ to the equivalent of $3.69/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes lost 55¢ to $32.46/bbl Monday, still well above the group's official target of $22-28/bbl.

Analysts raise price forecasts
However, analysts with Raymond James & Associates Inc., St. Petersburg, Fla., on Monday raised their oil price forecasts to above $34/bbl from $31/bbl for 2004 and to $33/bbl from $32/bbl for 2005.

"As recently as 2 months ago, we were concerned about a potential fall in second quarter oil prices," said J. Marshall Adkins, an analyst in Raymond James' Houston office. That was based in part on "potential negative consequences from the Feb. 10 OPEC meeting" and "the fact that the IEA second-quarter forecast called for huge builds in global oil inventories."

However, Adkins said, "The OPEC meeting [with its pending production cut] has proven to be more of a positive than a negative, and it now appears that IEA concerns about second-quarter inventory builds were somewhat exaggerated."

He said, "Our bet is that the IEA is simply underestmating global demand and overestimating oil supplies."

Raymond James also raised its US natural gas price forecasts, to an average $5.92/Mcf from $5.49/Mcf in 2004 and to $6/Mcf from $5.75/Mcf in 2005. "While US natural gas prices have generally been the energy stock price driver over the past 5 years, oil has recently become the dominating topic of conversation. Going forward, we believe that natural gas will be linked much more closely with oil prices than we have seen over the past decade," Adkins said.

Contact Sam Fletcher at samf@ogjonline.com

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