Sam Fletcher
Senior Writer
HOUSTON, Oct.6 -- Energy futures prices jumped Friday with the closure of some Mexican ports on the Gulf of Mexico ahead of Tropical Storm Larry, temporarily curtailing exports of Mexican oil to the US.
That storm is dissipating over eastern Mexico. But Hurricane Kate is now in the Atlantic 655 miles southwest of the Azores, moving north-northeast at 22 mph with sustained winds of 85 mph. It is the sixth Atlantic hurricane this season, which extends through Nov. 30.
Oil prices surge
"Oil prices have surged more than 12% since [the Organization of Petroleum Exporting Countries'] surprise announcement nearly 2 weeks ago that it will cut output quotas by 900,000 b/d beginning next month," said Robert S. Morris, an analyst at Banc of America Securities LLC, New York, in a Monday report.
Meanwhile, oil production among the 10 active OPEC members, minus Iraq, "dropped last month to a level that was only 220,000 b/d above current quotas, exceeding [official] targets by the smallest amount since January," Morris said. "Underscoring this drop was a 190,000 b/d decrease in output by Saudi Arabia."
He said oil prices "clearly gained momentum" last week as a result of "continued short covering" (traders buying oil contracts to cover open sales contracts in the futures market) in the wake of OPEC's announced production cuts, the possibility that OPEC will announce another production cut in December, the recent onset of colder Autumn weather in the US, the expected decrease in the build of US inventories of petroleum products last week as refineries began scheduled maintenance and turnaround programs, a flare-up of labor problems in Nigeria, tough talk by Venezuelan officials who want OPEC to raise its target price band to $25-32/bbl from $22-28/bbl, and unsubstantiated rumors of a refinery fire on the US Gulf Coast.
Oil and gas workers in Nigeria demanded that the government take action this week to address problems in that sector. At a weekend press conference in Lagos, union representatives said the problems go beyond price increases. Union members are especially concerned about potential plans to privatize the downstream oil sector.
Iraq plans development
The heads of some 60 international oil companies have been invited to a December conference in Baghdad to discuss plans to develop Iraq's large oil fields, an Iraqi newspaper reported Sunday.
Meanwhile, exports of oil from Iraq's northern oil fields could resume in November, said a senior official of the US-led Coalition Provisional Authority that now rules that country.
The US official said repairs to the damaged pipeline connecting Iraq's northern oil fields with the Mediterranean port of Ceyhan, Turkey, should be completed by mid-October. He said exports would resume when storage tanks at the Ceyhan export terminal are filled. Officials also are looking for "other Iraqi outlets" through which to export oil from the northern fields.
Postwar looting and sabotage of oil facilities have kept Iraq's oil exports well below its prewar level of 2 million b/d. Iraq currently is exporting 900,000 b/d of crude from its southern terminal of Mina al-Bakr on the Persian Gulf.
Iraq will need $36 billion to finance its reconstruction in 2004-07, according to reports from the United Nations and the World Bank to be presented at the Iraqi donor conference in Madrid later this month.
That's in addition to the $20 billion that the Coalition Provisional Authority has said is needed for "critical sectors", including security and oil.
Not all of the identified projects will need outside financing, officials said. Some $1 billion to be spent in 2004 is already covered by ongoing contracts through the UN's prewar oil-for-aid program.
Futures market prices
Unleaded gasoline led Friday's price surge on the New York Mercantile Exchange, with the November contract jumping up 3.06¢ to 85.11¢/gal, the highest near-month price level since mid-September, analysts said. Heating oil for the same month increased by 0.96¢ to 81.79¢/gal. The November contract for benchmark US light, sweet crudes gained 56¢ to $30.40/bbl, while the December position advanced by 53¢ to $30.10/bbl.
The November natural gas contract was up by 8.1¢ to $4.77/Mcf on NYMEX, "lifted by a firm crude oil market, storm concerns, and some pre-weekend short covering when downside momentum stalled early in the session," said analysts Monday at Enerfax Daily.
"Natural gas price momentum, in the absence of a continued surge in oil prices, may ebb this week with a warming trend expected to engulf the central US and spread across the country by the middle of the month," said Morris at Banc of America Securities. "Apart from the hand of Mother Nature or some unexpected event, we don't foresee much upside near term for either crude oil or natural gas prices."
In London, the November contract for North Sea Brent oil increased by 41¢ to $28.71/bbl Friday on the International Petroleum Exchange. That market is more bullish since OPEC's announced cut in oil production, brokers said, with oil futures values apparently set to remain above $28/bbl for the near term.
The November natural gas contract lost 1.7¢ to the equivalent of $4.12/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes increased by 25¢ to $27.85/bbl Friday.
For the whole week, however, OPEC's average basket price jumped by $1.45 to $26.78/bbl. So far this year, OPEC's basket price has averaged $27.84/bbl, up from an average $24.36/bbl for all of 2002.
Contact Sam Fletcher at [email protected]
