By the OGJ Online Staff
HOUSTON, Nov. 19 -- Energy futures prices rebounded Friday in response to massive declines in earlier trading sessions last week, but analysts said international oil markets remain highly uncertain.
Some traders fear that the Organization of Petroleum Exporting Countries may be ready to launch a price war if nonmember countries -- particularly Russia -- don't comply with its demand to reduce oil production 500,000 b/d on Jan. 1. OPEC ministers last week imposed that condition on their proposal to cut their own production quotas by 1.5 million b/d.
Many traders and market analysts apparently don't believe non-OPEC producers will make that reduction, thereby forcing OPEC members to forego their proposed cutbacks.
However, Paul Horsnell, head of energy research for JP Morgan Chase & Co. in London, reported Sunday, "There is no indication that OPEC is bluffing, and there are also no signs of anything less than unanimity among its members for a strategy which looks like the 1997-99 period with the fast-forward button pressed down."
He said, "The intention will be to drive the prices of benchmark crude oils very swiftly into single digits (i.e., not bothering with the more gentle continuous bleed-down through 1998), so that at some points the price of Russian Urals crude oil could easily hit as low as $6/bbl."
Russia's position remains unclear, creating "an impasse that will only, directly or indirectly, be resolved by President [Vladimir] Putin taking into account a wide range of economic, political, and diplomatic factors," said Horsnell.
"With Saudi Arabia sitting on at least 3 million b/d of spare capacity, they have the ability to convince the markets to put the price as low as is desired," he said.
The danger, said Horsnell, is that neither Russia nor OPEC has yet figured out how to read each other's signals correctly. "They look like first-time tango partners who could just crash to the ground in a hideous tangle of flailing and uncoordinated limbs, more through lack of understanding than intent," he said.
The December contract for benchmark US light, sweet crudes gained 58¢ to $18.03/bbl Friday on the New York Mercantile Exchange, while the January contract was up 53¢ to $18.37/bbl. However, both contracts declined in after-hours electronic trading to $17.77/bbl and $18.11/bbl, respectively.
Unleaded gasoline for December delivery jumped by 1.38¢ to 50.22¢/gal Friday on the NYMEX. Home heating oil for the same month gained 1.09¢ to 52.18¢/gal. The December natural gas contract also increased by 8.6¢ to $2.64/Mcf.
In London, the new front-month January contract for North Sea Brent crude was up 42¢ to $17.75/bbl on the International Petroleum Exchange. However, brokers said prices less than $18/bbl for Brent crude are unjustifiably low at present and that a recovery is needed before the market's direction could become clearer.
The December natural gas contract also gained 2.2¢ to the equivalent of $3.48/Mcf on the IPE.
The average price for OPEC's basket of seven crudes dropped 11¢ to $16.08/bbl Friday.
For the week, however, the average basket price increased to $18.43/bbl from $17.87/bbl the previous week, OPEC officials reported. So far this year, the group's basket price has averaged $23.87/bbl, down from $27.60/bbl during all of 2000.
