Sam Fletcher
Senior Writer
HOUSTON, Oct. 13 -- Energy futures continued to soar Friday in an on-going scramble by large commodity-fund speculators to reverse earlier bets that prices for crude and heating oil would fall this winter.
Although currently low US inventories of heating oil and natural gas appear adequate for "normal" winter demand, speculators now fear that a colder-than-normal winter will trigger spot shortages and price spikes in the Northeast US, the world's largest market for heating fuel.
Those fears were fanned Friday by a warning from the International Energy Agency, Paris, that petroleum stocks remain at low levels among all of the economically developed countries with the start of the official winter season less than 3 weeks away.
Odds favor colder winter
"Several current weather forecasts (including the ever-reliable Farmer's Almanac) are calling for cooler winter weather this year ([in major US fuel markets] where it matters)," noted J. Marshall Adkins, an analyst in the Houston office of Raymond James &Associates Inc., St. Petersburg, Fla. Using "a more statistical-based analysis," he reported Monday, "we have determined that there is less than a 20% probability that the winter will be warm enough to cause US natural gas prices to fall significantly below $4.50/Mcf."
Instead, he said, "We believe that winter gas prices are likely to average between $4.50-6.50/Mcf, with a 30% probability that prices spike much higher with colder weather."
Based on previous history of winter withdrawals of natural gas from US underground storage, Adkins reported, "A normal winter weather scenario would leave us about 300 bcf short of the comfort zone" by next spring.
Because of "suspect data" from the US Energy Information Administration on current natural gas supplies, however, Atkins said, "We have opted to focus more on pubic company reported production data, largely because it has to be certified for public filings" under the Sarbanes-Oxley Act passed by Congress in 2002. On that basis, he said, "We believe natural gas supply will continue to fall at a 2% (1 bcfd) year-over-year pace this winter."
Uncertainties in Nigeria
Meanwhile, the recent resignation of Rilwanu Lukman as oil advisor to Nigeria's president (OGJ Online, Oct. 8, 2003) "leaves a credibility vacuum" in that country that narrowly avoided another strike by oil workers last week, said Tyler Dann, an analyst in the Houston office of Banc of America Securities LLC, New York.
"Lukman, formerly Nigeria's oil minister, OPEC president 1986-1989 and in 2002, and OPEC secretary-general 1995-2002, gave Nigeria an oil figurehead of sorts that could provide stability and credibility in the international arena," Dann reported Monday. But now, he said, "power has likely shifted" to Jackson-Gaius Obaseki, head of the state-run Nigerian National Petroleum Corp., which controls acreage and oil development in that country.
"Obaseki and Lukman seemed to butt heads at times, as Lukman was left in the dark on issues that now plague NNPC as potential marks of corruption," said Dann. "Some sources report that Lukman could wind up as Nigeria's ambassador to the US, which may end up a positive for integrated oil companies ChevronTexaco [Corp.] and ExxonMobil [Corp].
Y. Seyyid Abdulai, director general of the Organization of Petroleum Exporting Countries' Fund for International Development, warned over the weekend that it would be suicidal for Nigeria to quit OPEC. Abdulai, a Nigerian who is slated to retire next month after 20 years as head of the OPEC fund, said a proposal that country leave the cartel is "nonsense at all angles." He said, "Staying in OPEC is in Nigeria's interest, since Nigeria will always sell at the market price."
Abdulai noted that Nigeria and fellow OPEC member Kuwait each have a production capacity of 2 million b/d. However, he said, Nigeria has a population of more than 100 million people and known oil reserves that are estimated would last 50 years at current production levels, while Kuwait has much larger reserves and a population of 500,000.
Energy prices
Heating oil for November delivery jumped by 2.78¢ to 88.2¢/gal Friday on the New York Mercantile Exchange as speculators bought contracts to cover outstanding sales agreements. Unleaded gasoline for the same month gained 0.92¢ to 89.07¢/gal. The November contract for benchmark US light, sweet crudes escalated by 96¢ to $31.97/bbl Friday on NYMEX, while the December contract increased by 90¢ to $31.99/bbl. On the spot market, West Texas Intermediate crude at Cushing, Okla., was up by 95¢ to $31.98/bbl.
The November natural gas contract rose by 15.8¢ to $5.65/Mcf on NYMEX, "driven by firm crude [prices] and some follow-through technical buying after Thursday's sharp surge, despite a lagging cash [gas] market," said analysts Monday at Enerfax Daily.
In London, the November contract for North Sea Brent oil was up by 76¢ to $30.20/bbl on the International Petroleum Exchange. The November natural gas contract also increased, up by 1¢ to the equivalent of $4.17/Mcf. The November gas oil contract gained $17.25 to $274.25/tonne Friday on IPE.
The average price for OPEC's basket of seven benchmark crudes shot up by $1.28 to $29.88/bbl Friday. For all of last week, the basket price averaged $28.19/bbl, up by $1.41 from the previous week.
So far this year, OPEC's basket price has averaged $27.85/bbl, up from an average $24.36/bbl ;fro all of 2002.
Contact Sam Fletcher at [email protected]
