Market watch: Energy futures prices mixed as traders assess signals

Jan. 23, 2003
Energy futures prices were mixed amid signs the strike in Venezuela may be weakening and assurances by Saudi Arabia that it will take measures to ensure oil prices remain within the $22-28/bbl target.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 23 -- Energy futures prices were mixed Wednesday amid signs that the general strike in Venezuela may be weakening and assurances by Saudi Arabia that it will take measures to ensure that oil prices remain within the $22-28/bbl target range of the Organization of Petroleum Exporting Countries.

The fact that Venezuelan President Hugo Chávez has remained in office through 53 days of a nationwide general strike aimed at ousting him "suggests that (his) hold on power is not as tenuous as the opposition had hoped," said analysts Wednesday at Fitch Ratings Ltd., New York. "Whereas at the beginning of the strike every day that passed appeared to weaken Mr. Chávez's position, now every day that he retains power seems to strengthen his hand," they reported.

"At the same time, the (Venezuelan) government is contending with an unprecedented opponent," added Fitch analysts. "The opposition's ability to maintain an adherence rate of more than 75% among (both blue- and white-collar) oil strikers, coupled with its emphasis on nonviolence and an electoral solution to the crisis, has infused (strike) supporters with a sense of civic-mindedness not seen in Venezuelan politics in 50 years."

Fitch analysts said they expect the strike to continue "at least through mid-February."

In one major turn of events, Venezuela's Finance Ministry and the Central Bank of Venezuela jointly announced Wednesday that foreign exchange trading in that country is being suspended for 5 business days to halt the flight of capital out of that country and to defend its dwindling international monetary reserves. Chávez said his government is preparing to establish new exchange controls.

Meanwhile, the US Department of Energy reported US oil inventories increased by 1.5 million bbl to 273.8 million bbl last week, with gasoline stocks up 700,000 bbl to 216.3 million bbl and distillate inventories falling 3.1 million bbl to 129.2 million bbl. However, total US commercial petroleum inventories were 44.1 million bbl below the 5-year average for the week.

"In other words, relative to a normal pattern, the US market tightened at a rate of 1 million b/d (last week)," said Paul Horsnell, head of energy research for JP Morgan Chase & Co., London.

"The impact of the Venezuelan crisis does then seem to be entering a new phase," Horsnell reported Thursday. "(US) crude oil inventories can't fall much further; refinery runs are being cut more aggressively than the normal seasonal cuts; and the first flush of easy-to-find oil product imports has passed."

As a result, he said, "We are left in a situation where refinery utilization is little changed from last year, even though demand is running 354,000 b/d higher, and where US Gulf Coast crude imports are running (on a 4-week average) 720,000 b/d lower than last year." He added, "Most important of all, that impact is not over yet."

The new near-month March contract for benchmark US sweet, light crudes lost 34¢ to $32.85/bbl Wednesday on the New York Mercantile Exchange, while the April position retreated 22¢ to $31.79/bbl. Heating oil for February delivery gained 1.72¢ to 91.19¢/gal. Unleaded gasoline for the same month dipped by 0.17¢ to 89.93¢/gal.

The February natural gas contract jumped by 24¢ to $5.67/Mcf Wednesday on NYMEX.

"The market breached 22-month highs on the way to a peak of $5.74(/Mcf during Wednesday's trading session), driven higher by continued cold weather forecasts and deliverability problems in the Northeast (US)," analysts at Enerfax Daily reported Thursday.

"Prices as high as $22.50(/Mcf ) on major Northeast pipelines boosted cash prices elsewhere. Power prices also soared, and key utilities were reported forcing penalties on pipelines that under-delivered their natural gas," they said.

"Backwardation—the pricing structure in which deliveries in the near term have a higher price than those for more distant delivery and typical for this time of year—sent the Henry Hub cash price to a 70¢(/Mcf) premium over NYMEX. Locals sold down early in the (Wednesday) session after the higher opening, then turned around and covered short positions. With little liquidity in the market, commercial traders and fund buyers joined the buying as the market rose above $5.55(/Mcf)."

Meanwhile, in London, the March North Sea Brent oil contract lost 40¢ to $30.34/bbl on the International Petroleum Exchange. The February natural gas contract plunged 25.7¢ to the equivalent of $3.01/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes slipped by 1¢ to $30.89/bbl Wednesday.

Contact Sam Fletcher at [email protected]