Sam Fletcher
OGJ Senior Writer
HOUSTON, Dec. 13 -- Indications of reduced supplies triggered jumps in oil and natural gas futures prices Thursday on the New York Mercantile Exchange.
Thursday's decision by the Organization of Petroleum Exporting Countries to raise members' collective production quotas by 6%, or 1.3 million b/d, effective Jan. 1, while urging stricter compliance with production limits, was an instant success with traders who immediately bid up oil prices on the futures market (OGJ Online, Dec. 12, 2002).
But the big news was in natural gas futures, as the January position soared past $5/Mcf to the highest level since April 2001. That contract hit $5.15/Mcf during Thursday's session before closing at $5.09/Mcf, up a whopping 38¢ for the day in a market where movements usually are measured by fractions of a penny.
"The market opened up and jumped over $5(/Mcf) soon after the Energy Information Administration reported a 162 bcf storage withdrawal, which was slightly higher than expected. The EIA says total working gas in storage was 2.794 tcf as of Dec. 6 (OGJ Online, Dec. 12, 2002). Total inventories are 444 bcf less than a year ago, and 82 bcf below the 5-year average of 2.876 tcf. The day's $5.15(/Mcf) high had not been equaled since the market was coming off its historic $10.10(/Mcf) high made in late December 2000," said analysts Friday at Enerfax Daily.
They also noted, "The (natural gas futures) market seems to be a different place and (to) go by different rules than it did when Enron (Corp.), Dynegy (Inc.), El Paso (Corp.), Duke (Energy Corp.), and (American Electric Power Co. Inc.) were all involved in trading."
Those former major energy merchants normally would have sold into such winter rallies, dampening the price rise, analysts said. But during Thursday's trading session, they said, "Funds and locals came rushing into the market to buy the rally, while commercial trading houses were seen as scale-up sellers."
Other market fundamentals that helped drive up gas futures prices included dwindling US gas production, forecasts for below-normal temperatures though December, and a strong oil market.
Still, Enerfax Daily analysts warned that possible profit taking by NYMEX traders during Friday's session might roll back gas futures prices below $5/Mcf.
The January contract for benchmark US light, sweet crudes jumped 61¢ to $28.01 Thursday on NYMEX, while the February position increased by 57¢ to $27.99/bbl.
Unleaded gasoline for January delivery shot up 3.32¢ to 80.71¢/gal. Heating oil for the same month rose 2.38¢ to 79.25¢/gal.
OPEC's strategy of increasing its official collective quota to 23 million b/d from its current level of 21.7 million b/d is aimed at taking oil off the market by encouraging stricter compliance among members with the new production ceiling before the seasonal drop in winter demand next spring.
Analysts estimate OPEC members currently are producing 2.5 million b/d above their current quota, or 24.2 million b/d. The cutback is scheduled to begin in January before the historical peak in winter demand.
Moreover, it comes at a period of confrontation between Iraq and the United Nations that could trigger military action in the Middle East and also comes 12 days into a general strike in Venezuela that has crippled oil production and exports by Petroleos de Venezuela SA (PDVSA), the national oil company.
Venezuelan officials claimed Thursday that they had broken the strike involving more than 90% of PDVSA's employees and had begun loading oil and petroleum products into five tankers, two of which had already departed for US markets.
However, other news sources report no tankers have left Venezuela in 4 days and that 40 tankers remain anchored away from loading terminals as a result of the strike aimed at ousting Venezuelan President Hugo Chavez. News reports quoting opposition sources said one of the tankers that Venezuelan government officials had reported en route to the US with a crude cargo actually transferred its oil cargo to the Amuay refinery in Venezuela.
Representatives of the Chavez government and the opposition have been meeting to negotiate a possible settlement that would end the strike and allow an early election. However Cesar Gaviria, secretary general of the Organization of American States who is the key mediator of those talks, said the two sides are still far from an agreement.
In London, the January contract for North Sea Brent oil gained 62¢ to $26.87/bbl on the International Petroleum Exchange. However, the January natural gas contract lost 12.7¢ to $3.97/Mcf on IPE.
The average price for OPEC's basket of seven crudes gained 36¢ Thursday to $27.06/bbl.
Contact Sam Fletcher at [email protected]
