Sam Fletcher
Senior Writer
HOUSTON, Dec. 16 -- Futures prices for natural gas and heating oil declined Monday with indications of a break in the recent wave of cold weather across much of the US, but oil prices rose on the New York Mercantile Exchange, despite predictions by some that the weekend capture of former Iraqi President Saddam Hussein might trigger a rollback.
"The capture of Saddam Hussein could cause a quick drop in oil prices, which currently have a security premium of about $5/bbl," said Michael C. Lynch, president of Strategic Energy & Economic Research Inc. in Winchester, Mass.
"Expectations that the military situation in Iraq will ease substantially and that exports [of Iraqi crude] through Turkey could add a quick 300,000 b/d to the market could cause a rout of the [market] bulls who have been exaggerating impact of the cold weather in the US and political instability in the Middle East," said Lynch in a strategic brief issued Sunday.
"Although world markets remain relatively tight at the moment, most indicators suggest that the crude market is overbought. Product prices remain low, and the degree of backwardation [a market situation in which futures contract prices are progressively lower in the distant delivery months] is fairly minor, while world oil production is soaring," he said. "The potential for a crude sell-off, even strong shorting by hedge funds, is very real and could take the West Texas Intermediate price under $30[/bbl] very quickly."
However, Michael Rothman, senior energy market specialist at Merrill Lynch Global Securities Research & Economics Group, New York, expressed doubts Monday that Saddam's capture would have much immediate effect on the production and export of Iraqi oil or on world oil prices. "We disagree with assertions by many market pundits that current oil prices reflect a 'terrorist premium' of up to $9/bbl. These views, like those about the 'war premium' earlier this year, ignore underlying fundamentals, including a still large storage deficit and limited spare production capacity," he said (OGJ Online, Dec. 15, 2003).
Energy prices
The January natural gas contract fell by 26.7¢ to $6.95/Mcf Monday on NYMEX, "pressured by technical selling and profit taking after last week's sharp gains and milder midweek weather forecasts," said analysts Tuesday at Enerfax Daily.
"The weather is supposed to be milder this week, but the news of Saddam's arrest was also a catalyst for selling," they said. "The big rally last week that drove [gas futures] prices up nearly 20% was fueled by forecasts of another shot of frigid weather before the Christmas holiday. But some predictions seemed to be moderating."
Heating oil for January delivery lost 0.5¢ to 92.06¢/gal on NYMEX Monday. Unleaded gasoline for the same month climbed by 0.24¢ to 90.28¢/gal, however.
The January contract for benchmark US sweet, light crudes advanced by 14¢ to $33.18/bbl Monday on NYMEX, while the February contract gained 29¢ to $33.24/bbl. On the US spot market, WTI at Cushing, Okla., increased by 15¢ Monday to $33.18/bbl.
In London, the January contract for North Sea Brent oil dipped by 5¢ to $30.32/bbl Monday on the International Petroleum Exchange. However, gas oil for January delivery increased by $5 to $272/tonne, and the January natural gas contract jumped by 13.2¢ to the equivalent of $5.92/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 14¢ to $30.04/bbl Monday.
Contact Sam Fletcher at [email protected]
