Market watch: Oil, gas futures prices fall in London market

Feb. 18, 2003
Energy futures prices fell Monday in the London market, with the New York Mercantile Exchange closed for the Presidents' Day holiday.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 18 -- Energy futures prices fell Monday in the London market, with the New York Mercantile Exchange closed for the Presidents' Day holiday.

The April contract for North Sea Brent oil lost 58— to $31.92/bbl Monday on the International Petroleum Exchange in London, after European Union leaders at a summit meeting said United Nations weapons inspectors should be given more time to complete their work before any military action is taken against Iraq.

That triggered selling of oil futures positions, said brokers. Traders still think a war between US-led forces and Iraq is likely, they said, but not before late March or April, rather than at the end of February as some had anticipated.

Meanwhile, they said, with some stale long positions "shaken out" by Monday's sell-off, there is a good possibility that oil prices will rally again.

The March natural gas contract plunged 32.3— to the equivalent of $2.91/Mcf Monday on IPE, with traders apparently taking profits on last week's rally, which had gained a total 59.1—/Mcf for that contract, including a 13.7— hike Friday.

The average price for the Organization of Petroleum Countries' basket of seven benchmark crudes lost 43— to $31.90/bbl Monday.

US spot market prices for West Texas Intermediate crude hit a 29-month high last week as US and UK officials continued to push for forceful disarmament of Iraq. US commercial oil inventories fell to their lowest level since 1975 with a larger-than-expected draw on US oil and petroleum product stocks during the previous week.

"Along the natural gas front, the 12-region composite spot price held steady at nearly $6/MMbtu as the nation prepared for a blast of cold weather along the east coast over the long holiday weekend," Robert Morris, with Salomon Smith Barney Inc., New York, reported Tuesday.

"However, temperatures are expected to revert to normal (or) above normal through the country later this week," Morris said. "Thus, with only 6 weeks officially left for this winter, natural gas prices may have surpassed their peak for the first half of this year."

Meanwhile, he said, "With both oil and natural gas prices at extremely high levels right now and the expectation that they will fall in the future, particularly oil prices with an ultimate resolution to the conflict with Iraq, many investors are reluctant to aggressively buy (exploration and production companies') shares, on average."

However, Morris said, "We believe that natural gas prices will be much stronger than most had expected and that the (Wall) Street consensus for the full year needs to rise from just under $4/MMbtu currently to at least $4.50-5/MMbtu, partially dependent on the continued strength of oil prices."

Morris noted that 22 of the 40 largest publicly traded producers have indicated that US production of natural gas dropped 2.6% sequentially during fourth quarter 2002 and by 7.2% for the year. "Keep in mind, though, that a small part of these declines was due to the hurricane-related interruptions in the Gulf of Mexico early in the fourth quarter," he admonished.

In a separate report Tuesday, Tyler Dann, an analyst in the Houston office of Banc of American Securities LLC, said Nigeria's oil production appears safe from strikes by workers in that country. The Petroleum & Natural Gas Senior Staff Union Association is backing a strike by 750 employees of the Nigerian Department of Petroleum Resources to obtain back pay and autonomy for their department from Nigeria's Ministry of Petroleum Resources, he said.

"Thus far, the strike does not appear to be affecting oil production and export operations," said Dann. "Senior management has been dispatched to the fields to function as replacements for the workers in the short term, and most international oil companies are not openly expecting disruptions to their activities in the country."

Nonetheless, he said, the strike could spread to employees of the National Union of Petroleum & Natural Gas Workers of Nigeria. "Our most likely scenario remains that the Nigerian government will keep the strikes from significantly affecting operations," Dann said. "However, with the Venezuelan strikes in recent memory, we would keep tabs on this one just in case."

Meanwhile, Dann reported, the Kuwait Oil Co. said it shut in production from Abdali and Ratqa fields "in light of their proximity to the Iraqi border." That production equals 25,000 b/d, or 1.3% of Kuwait's latest 3-month average total production, he said.

Contact Sam Fletcher at [email protected]