Market watch: Energy futures prices falter as war worries decline

Dec. 9, 2002
Energy futures prices declined Friday ahead of Iraq's weekend compliance with demands by the United Nations that it report any weapons of mass destruction in its possession.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 9 -- Energy futures prices declined Friday ahead of Iraq's weekend compliance with demands by the United Nations that it report any weapons of mass destruction in its possession.

Iraq's report, issued at the Sunday deadline, declared it has no such weapons and no plans to develop them.

"However, US officials have stated that the declaration must be more than accurate; that it must lead UN inspectors to arms caches or to irrefutable evidence that they have been destroyed. Otherwise, the US appears intent on making good on promises to disarm Iraq by force and remove Iraqi President Saddam Hussein from power," Robert Morris, an industry analyst with Salomon Smith Barney Inc. in New York, reported Monday.

Meanwhile, UN officials have said it will take weeks and perhaps months to review the 12,000-page Iraqi report. That has relieved market fears of immediate military action that might threaten Middle East oil supplies.

Still, Morris said, "Oil prices are likely to retain much of their current 'war premium.'"

Members of the Organization of Petroleum Exporting Countries are scheduled to meet Thursday in Vienna to discuss production quotas. "Although production by the organization, excluding Iraq, currently exceeds targets by more than 2.5 million b/d, output dropped last month as Saudi Arabia led an effort to reduce cheating on quotas," said Morris.

Furthermore, he said, "It is unlikely that OPEC will raise quotas to the new de facto levels at its upcoming meeting, and it is unclear whether any changes to quotas will be made at all."

"We continue to expect the most likely outcome is for no change to OPEC's existing 21.7 million b/d quota but a reaffirmed commitment to lower physical supplies, said Matthew Warburton, analyst with UBS Warburg LLC, New York, in a separate report Monday.

The January contract for benchmark US light, sweet crudes lost 36¢ to $26.93/bbl Friday on the New York Mercantile Exchange. The February position retreated 28¢ to $26.89/bbl. Unleaded gasoline for January delivery fell 1.24¢ to 74.03¢/gal. Heating oil for the same month dropped 0.89¢ to 74.73¢/gal.

The January natural gas contract dipped 2.3¢ to $4.38/Mcf in lackluster trading Friday on NYMEX. Traders are awaiting the next weather forecast to give the market direction, analysts at Enerfax Daily reported Monday.

"Most traders were playing it close to the vest ahead of the weekend. Not many wanted to be short, so they were playing with the range. A change in today's weather report could send the market in either direction," they said.

In London, futures prices for North Sea Brent oil declined with profit taking Friday on the International Petroleum Exchange. The January Brent contract lost 34¢ to $25.46/bbl. However, brokers said market news remained bullish, and prices were likely to rebound above $26/bbl.

The January natural gas contract gained 6.1¢ to the equivalent of $4.41/Mcf Friday on IPE, once again surpassing the NYMEX price level.

The average price for OPEC's basket of seven benchmark crudes lost 7¢ to $25.88/bbl Friday. For the whole week, however, that average price increased by 69¢ to $25.72/bbl from the previous week.

So far this year, OPEC's basket price has averaged $23.98/bbl, up from $23.12/bbl for all of 2001.

Contact Sam Fletcher at [email protected]