By OGJ editors
HOUSTON, Jan. 22 -- Trading in New York and London energy futures markets was mixed Tuesday, as the continued build-up of US and UK forces in the Middle East appeared to be approaching a "point of no return" in a possible armed conflict with Iraq.
Strong statements by President George W. Bush and US Secretary of State Colin Powell indicated that a military operation is nearing and set the stage for an additional rise in oil prices, analysts said.
The February contract for benchmark US light, sweet crudes jumped 70¢ to $34.61/bbl Tuesday on the New York Mercantile Exchange, while the March position advanced by 23¢ to $33.19/bbl. That market was closed Monday for the Martin Luther King holiday.
Unleaded gasoline dropped 1.01¢ to 90.1¢/gal on NYMEX. Heating oil for the same month was down 0.39¢ to 89.47¢/gal.
The February natural gas contract fell 10.3¢ to $5.43/Mcf in profit taking Tuesday on NYMEX.
In a report issued Tuesday, Stephen Smith, president and founder of Stephen Smith Energy Associates, Natchez, Miss., said the US gas storage surplus, relative to seasonal norms, amounted to 540 bcf on Jan. 1, 2002, and peaked at nearly 800 bcf in late February as a result of mild weather during the first 2 months of last year.
However, 10 months later, Smith said, "This surplus had almost vanished (down to 26 bcf by Dec. 13). But the 4 weeks ending Jan. 10 (2003) were 15% milder than normal, and the surplus expanded again (to 181 bcf)."
He said, "This recent storage surplus expansion appears temporary. We have already had 10 very cold days since the last reported gas storage results, and the rest of January is expected to be colder than normal as well."
Total US natural gas storage peaked this winter at 3.172 tcf, with 2.195 tcf currently remaining, said analysts Wednesday at Enerfax Daily. That's 453 bcf below year-ago levels of 2.648 tcf and down 18 bcf from a 5-year average of 2.213 tcf, they said.
The outlook for the US gas market in 2003 is good, Smith said. Assuming an average price of $3.50/Mcf over the year, he projects a 2.5% growth in US demand for gas this year. Smith's projection also assumes 2.8% real growth in the US gross domestic product, normal winter weather vs. 3% warmer-than-normal in 2002, normal summer weather vs. 18% warmer-than-normal last summer, and a Henry Hub cash market price averaging $4.30/Mcf this year.
But with 2003 commodity prices projected at averages of $3.50/Mcf for gas and $25.50/bbl for oil, Smith expects a 1% decline in US gas production this year and a 3% decrease in net US imports of gas.
"Combining our demand and supply forecasts with a Jan. 1 gas storage surplus of 113 bcf would lead to a theoretical supply shortfall of over 460 bcf for the year 2003," he said. While that supply-demand gasp would be "at least partially closed" if gas prices surpass the projected $3.50/Mcf average, Smith said, "We think that a demand destruction process similar to that seen in 2001 will be required to clear markets."
In London, the February contract for North Sea Brent oil inched up 9¢ to $30.74/bbl Tuesday on the International Petroleum Exchange. However the February natural gas contract dropped 12.4¢ to the equivalent of $2.83/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 31¢ to $30.90/bbl Tuesday.
