Sam Fletcher
Senior Writer
HOUSTON, Feb. 19 -- Oil futures prices continued to rally Tuesday as the US administration showed no signs of being turned aside by international protests of proposed military action against Iraq.
The March contract for benchmark US light, sweet crudes gained 16¢ to $36.96/bbl on the New York Mercantile Exchange as trading resumed Tuesday, following the 3-day holiday weekend. The April position increased by 15¢ to $35.51/bbl.
In London, the April contract for North Sea Brent oil jumped 62¢ to $32.54/bbl on the International Petroleum Exchange after British Prime Minister Tony Blair said Tuesday that there is a need to confront Iraq. London brokers said speculators also returned to that market, having earlier sold out stale long positions.
Oil outlook
Meanwhile, the London office of UBS Warburg LLC Tuesday hiked its average 2003 oil price forecast to $26.50/bbl for Brent oil and $28/bbl for West Texas Intermediate crude. "This year promises to be another year of high energy prices, driven by the unresolved disruption of production and exports in Venezuela, low industry stocks, and anticipation of war," said UBS Warburg analysts.
However, they said, "The main reason for the upgrade to our price forecasts is the crawling pace of recovery in Venezuelan oil production and exports. The general strike may be over, but normalization of the oil industry is apparently a distant prospect."
The analysts added, "It now seems likely that Venezuelan crude production will not return to the prestrike level of 2.9 million b/d before the fourth quarter of 2003 and may be delayed beyond that. We believe this will tend to keep markets for both sour crude and gasoline in the Atlantic basin in the first half of 2003 firmer than we expected just 2 months ago."
The general strike against Venezuelan President Hugo Chávez eliminated exports of about 70 million bbl of Venezuelan crude during January and February, which were only partially replaced by increased sales from Saudi Arabia and other members of the Organization of Petroleum Exporting Countries, said UBS Warburg analysts.
Moreover, they said, "The continuing refusal of. . . .Chávez to reinstate the sacked workers of PDVSA (Petroleos de Venezuela SA), the national oil company, means that the industry lacks the technical expertise and the funds to restore operations quickly." Chávez fired and called for criminal prosecution of 9,000 PDVSA managers and technicians for their participation in a lengthy general strike aimed at forcing him out of office (OGJ Online, Feb. 10, 2003). Although workers have since returned to jobs in other industries, many of the striking PDVSA workers are still holding out.
"Even if all PDVSA staff are reinstated, we should expect the cuts in PDVSA's expenditure in 2003 to bring about a decline in conventional crude production and renewed (capital expenditures) delays by foreign operators," UBS Warburg analysts said.
Other futures prices
With a winter storm lashing the Northeast US, heating oil for March delivery gained 0.47¢ to $1.07/gal Tuesday on NYMEX. Unleaded gasoline for the month plunged by 2.78¢ to 99.45¢/gal.
The March natural gas contract increased by 6¢ to $5.91/Mcf on NYMEX. "The market opened up and continued higher until hitting $6.02(/Mcf) about mid-morning, then dropping for most of the rest of the day. Spot prices in the Northeast pushed as high as $12(/Mcf), and another Arctic front is expected later in the week. Marketers have been skeptical of this winter's forecasts, which have jumped back and forth between extremely cold and unseasonably mild," analysts at Enerfax Daily reported Wednesday.
They said an anticipated report Thursday by the Energy Information Administration of another withdrawal of 190-200 bcf of gas from US underground storage could trigger more price hikes later this week.
In London, the March natural gas contract dropped 10.4¢ to the equivalent of $2.76/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes lost 5¢ to $31.85/bbl Tuesday.
Contact Sam Fletcher at [email protected]
