Market watch: Winter heating oil market lifts oil futures prices

Jan. 3, 2002
Increased US demand for home heating oil during the current cold snap pushed up futures prices for both oil and refined products in world markets Wednesday. The February contract for benchmark US sweet, light crudes jumped by $1.17 to $21.01/bbl on the New York Mercantile Exchange.

By the OGJ Online Staff

HOUSTON, Jan. 3 -- Increased US demand for home heating oil during the current cold snap pushed up futures prices for both oil and refined products in world markets Wednesday.

The new year also may instill new confidence among traders in the ability of the Organization of Petroleum Exporting Countries to dampen the oversupply of oil. Although some analysts question whether OPEC and other non-OPEC producers have the stamina to stick with their promised production cuts totaling more than 1.96 million b/d, virtually all agree that reducing supplies to meet demand is the only way to stabilize the world oil market.

The February contract for benchmark US sweet, light crudes jumped by $1.17 to $21.01/bbl Wednesday on the New York Mercantile Exchange. The March position also shot up by $1.12 to $21.23/bbl. Both contracts increased in after-hours electronic trading to $21.04/bbl and $21.30/bbl, respectively, on the strength of another bullish report on US petroleum inventories by the American Petroleum Institute.

After the end of the NYMEX trading session, API reported US oil inventories fell by 2.45 million bbl last week, while gasoline stocks declined by 312,000 bbl. Distillate stocks, including home heating oil, were up by 2.41 million bbl during the same period however. That report was delayed a day by the New Year's holiday Tuesday.

Home heating oil for February delivery climbed by 2.53¢ to 57.86¢/gal Wednesday during the regular NYMEX trading session. Unleaded gasoline for the same month bumped up 3.47¢ to 61.06¢/gal. However, the February natural gas contract lost 10.5¢ to $2.47/Mcf, continuing a general trend of moving in the opposite direction of liquids prices.

In London, the February contract for North Sea Brent oil climbed by $1.10 to close at $21/bbl, the high for the day on the International Petroleum Exchange. Trading opened at $19.46/bbl, the day's low, and values had remained weak through early afternoon, despite cold weather in Europe, until spurred by the surge in NYMEX prices, analysts said.

The February contract for natural gas also jumped 15.5¢ to the equivalent of $4.17/Mcf on the NYMEX.

The average price for OPEC's basket of benchmark crudes gained 27¢ to $18.85/bbl Wednesday.

OPEC Sec. Gen. Alí Rodríguez Araque of Venezuela expressed confidence Thursday that OPEC and non-OPEC producers will comply fully with their proposed production cuts so that the "oil market will progressively recover."

The Abu Dhabi National Oil Co. also announced early Thursday a 5% reduction of its oil production since Tuesday under the new production quota for the United Arab Emirates, an OPEC member. The UAE production quota is now little more than 1.89 million b/d, down 131,000 b/d from the previous level.

OPEC's ministers meeting in Cairo last Friday authorized a reduction of 1.5 million b/d in members' production quotas after five non-OPEC producers agreed to reduce production or exports by an additional 462,500 b/d.

Among the nonmembers promising production cuts were Norway, 150,000 b/d; Oman, 40,000 b/d; and Angola, 22,500 b/d. Russia and Mexico also pledged to reduce their oil exports by 150,000 b/d and 100,000 b/d, respectively.