By the OGJ Online Staff
HOUSTON, Mar. 15�Energy futures prices plunged in international markets Wednesday as traders focused on decreased demand from a cooling US economy instead of a pending production cut by the Organization of Petroleum Exporting Countries at its meeting Friday in Vienna.
Obaid Bin Saif Al-Nasseri, petroleum minister for the United Arab Emirates, said Wednesday OPEC members should raise the price base for its basket of seven crudes to $25/bbl from $22/bbl at present. The average price for the OPEC basket lost 53� Wednesday to $23.55/bbl.
Most observers assume OPEC will agree Friday to reduce oil production by 1 million b/d. The market apparently has already factored a minimum cut of 500,000 b/d into current prices.
Some analysts now say OPEC will have to curtail production by more than 1 million b/d to stem a continuing slide in oil prices.
Wednesday, the International Energy Agency reduced projections for global petroleum demand by 110,000 b/d to a total 1.41 million b/d for 2001. With previous revisions, that lowers IEA�s original growth estimate by 460,000 b/d as a weakening world economy softens demand.
The April contract for benchmark US light, sweet crudes dropped $1.18 to $26.41/bbl Wednesday on the New York Mercantile Exchange, while the May contract was down $1.21 to $26.62/bbl. However, both contracts rose in after-hours electronic trading to $26.55/bbl and $26.76/bbl, respectively.
Traders seemed to focus on a report by the American Petroleum Institute late Tuesday that US oil inventories increased by 9.5 million bbl last week. But in another report Wednesday, API said US crude inventories declined for 3 consecutive months to the lowest level in 26 years. Officials said US oil stocks totaled 276.4 million bbl at the end of February, down 10 million bbl from the previous month and 4.2% lower than at the same time last year.
Home heating oil for April delivery fell by 2.51� to 70.39�/gal Wednesday on the NYMEX, while unleaded gasoline for the same month lost 1.92� to 86.7�/gal.
Even with spring maintenance and turnarounds in full swing, API said, gasoline production by US refineries totaled 7.9 million b/d last week, only slightly below �unusually strong� levels of a year ago. Production of reformulated gasoline increased to 2.5 million b/d, up 3% from last year.
The April natural gas contract lost 9.5� to $4.91/Mcf on the NYMEX.
In London, the April contract for North Sea Brent crude fell $1.35 to $23.93/bbl Wednesday on the International Petroleum Exchange. The natural gas contract for the same month was down 1� to the equivalent of $3.30/Mcf on the IPE.
The American Gas Association reported natural gas withdrawals from US underground storage totaled 74 bcf last week, down from 77 bcf the previous week but up from 31 bcf a year ago. That left 708 bcf of gas in storage, 418 bcf less that at the same time last year, with more winter storms expected for the Lower 48 States during the rest of this month.
That means US gas storage levels will be in the 650-700 bcf range at the end of the winter heating season, down from 1 tcf a year ago, said Robert S. Morris, senior energy analyst at Salomon Smith Barney Inc.
His composite spot price forecast of $5/Mcf for US natural gas may prove conservative, Morris said Wednesday. �If domestic production growth is much less than 3% this year, as several exploration and production companies are claiming will be the case, then we would very likely confront an even tighter supply/demand balance for natural gas throughout this year compared with 2000,� he said.
With the North American natural gas market tightening, Morris said, the industry is reviving its interest in liquefied natural gas (LNG). Economics for LNG are improving, with current costs for LNG imported to the East Coast from the Caribbean now estimated at $3-$3.50/Mcf, he said.
US imports through the two operational LNG terminals at Lake Charles, La, and Everett, Mass, are expected to increase to 780 MMcfd this year from an average 650 MMcfd in the fourth quarter of 2000. By mid-2002, two mothballed terminals at Cove Point, Md, and Elba Island, Ga, are expected to be operational, boosting LNG import capacity to 3.1 bcfd.
El Paso Corp. recently revealed plans to spend $1.5 billion on construction of six North American LNG import terminals, including three in Mexico and one each in North Carolina, Florida and the Bahamas.
Enron also is planning an import terminal in the Bahamas to serve the Florida market.