MARKET WATCH
Crude, natural gas futures prices continue to climb

Sam Fletcher
Senior Writer

HOUSTON, Dec. 22 -- Energy futures prices continued to climb Dec. 21 in response to an unexpectedly large drawdown of US distillate fuel inventories.

The US Energy Information Administration reported distillate fuel stocks fell by 2.8 million bbl, with decreases in both heating oil and diesel fuel, during the week ended Dec. 16. US gasoline inventories dipped by 300,000 bbl to 204.1 million bbl during the same period (OGJ Online, Dec. 21, 2005). Commercial US crude stocks increased by 1.3 million bbl to 322.5 million bbl.

Meanwhile, Royal Dutch Shell PLC declared force majeure and reduced its Nigerian production by 180,000 b/d as a fire continued in an oil pipeline in the Niger Delta (OGJ Online, Dec. 21, 2005). The pipeline exploded Dec. 20, killing eight people, including some children. Officials said preliminary investigation indicated that the pipeline may have been dynamited.

Energy prices
The new front-month February contract for benchmark US light, sweet crudes gained 47¢ to $58.56/bbl Dec. 21 on the New York Mercantile Exchange. Trading was light due to the holiday season and the continuing New York transit strike. The March contract advanced by 45¢ to $59.14/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 38¢ to $58.37/bbl.

Heating oil for January delivery gained 3.61¢ to $1.76/gal on NYMEX. Gasoline for the same month increased by 2.76¢ to $1.54/gal. The January natural gas contract jumped by 19.1¢ to $14.27/MMbtu. "Speculators and hedge funds drove the market higher despite forecasts for milder weather," said analysts at Enerfax Daily. "The weather is bearish as the first day of winter rolled in, with temperatures in the Northeast forecast to rise above normal" through Dec. 26.

EIA reported Dec. 22 the withdrawal of 162 bcf of natural gas from US underground storage in the week ended Dec. 16. That was below the consensus of Wall Street analysts, down from the withdrawal of 202 bcf the previous week but up from withdrawal of 123 bcf during the same period a year ago.

US natural gas storage now is at 2.8 tcf, down by 243 bcf from last year's level but 64 bcf above the 5-year average.

"Temperatures last week, based on gas home-heating customer-weighted heating degree days, were roughly 15% colder than last year, almost 23% colder than the 10-year average, and almost 13% warmer than the prior week," said Robert S. Morris at Banc of America Securities LLC, New York. "Winter to date, which accounts for almost 26% of the total heating degree days in the average winter, temperatures this year have been 3.2% colder than the 10-year average."

In London, the February contract for North Sea Brent crude gained 55¢ to $56.72/bbl on the International Petroleum Exchange. The January contract for gas oil increased by $5.75 to $512.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes inched up by 6¢ to $51.43/bbl on Dec. 21.

Contact Sam Fletcher at samf@ogjonline.com.

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