Sam Fletcher
Senior Writer
HOUSTON, Jan. 6 -- Energy futures prices shot up Monday during the first trading session of 2004 on the New York Mercantile Exchange, prodded by forecasts of colder weather in much of the US.
Bullish statements Monday from Purnomo Yusgiantoro, Indonesia's energy minister and the new president of the Organization of Petroleum Exporting Countries also stimulated the market. Purnomo said OPEC would not change current production prior to a meeting of ministers on Feb. 10.
OPEC maintaining prices
"OPEC's intention to maintain oil prices near, or above, the upper end of its targeted band is reflected by the fact that the organization has scheduled meetings ahead of time for 2 consecutive months—Feb. 10 and Mar. 31—for the first time ever. And even though the basket price for crudes the organization monitors has exceed the upper end of its $22-28/bbl target range for more than 20 consecutive days, OPEC members have indicated that they are not likely to boost output by 500,000 b/d per their unofficial policy [to bring oil prices within that target] ahead of the February summit in Algiers," said Robert S. Morris at Banc of America Securities LLC, New York.
"In addition to arguing that the higher oil prices are justified as a result of the weaker US dollar, they remain concerned about the projected 2.4 million b/d season drop in demand during the second quarter," Morris said Monday.
He reported, "We believe that the consensus outlook for oil and natural gas prices is much more likely to continue to rise near term than decline, even though winter temperatures are still a key variable."
For oil, said Morris, "a key variable continues to be the outlook for exports from Iraq. We project that Iraq production (excluding reinjected volumes) will continue to ramp up throughout 2004 to 2.5 million b/d by yearend from just under 2 million b/d in December" 2003. He expects Iraqi oil exports to expand "to roughly 2.1 million b/d in the fourth quarter of 2004" from nearly 1.6 million b/d in December 2003.
However, Morris said, "Due to a lack of political stability, any real legal framework to attract foreign investment, and the persistence of security issues, we don't foresee Iraq production exceeding prewar levels until after 2004."
Energy prices
The February contract for benchmark US light, sweet crudes jumped by $1.26 to $33.78/bbl Monday on NYMEX, with the March position advancing by $1.23 to $33.51/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., climbed to $33.78/bbl Monday from $32.55/bbl on Wednesday.
"WTI spot crude oil prices continued to ascend during the first half of December to reach their highest level since before the Iraq war," said Morris. "The continued strength in oil prices has been underscored by further tightening in US crude plus product inventories. In fact, the US inventory-regressed fir value price for WTI spot oil has increased about $4.75/bbl over the past 6 weeks to $33.66/bbl."
He noted, "In the US, crude inventories ended December 13.4% below their 10-year average, vs. 11.4% below normal at the beginning of the month, and just above the 270 million bbl level considered by many to be the minimum safe operating level."
Meanwhile, heating oil for February delivery jumped by 5.38¢ to 96.84¢/gal Monday on NYMEX, amid forecasts for colder weather in key consuming regions of the US. Unleaded gasoline for the same month surged by 4.4¢ to 97.69¢/gal.
The February natural gas contract shot up by 63.8¢ to $6.83/Mcf Monday on NYMEX, based "on forecasts for cold weather that is likely to persist for the next few weeks in the Midwest and Northeast," said analysts Tuesday at Enerfax Daily. "Prices got further support as they zipped through buy-stops [preset market orders by buyers], unleashing further buying activity."
Other analysts at Merrill Lynch Global Securities Research & Economics Group, New York, said Tuesday, "Natural gas prices are likely to remain high, although with greater volatility," through 2004. They are forecasting an average price for the coming year of $4.75/Mcf at Henry Hub, La.
In London, the February contract for North Sea Brent oil jumped by $1.57 to $30.89/bbl Monday on the International Petroleum Exchange. Gas oil for January delivery increased by $11.50 to $283.25/tonne. However the February natural gas contract plummeted by 26.3¢ to $5.54/Mcf Monday on IPE.
The average price for OPEC's basket of seven benchmark crudes gained 44¢ to $29.85/bbl Monday.
Contact Sam Fletcher at [email protected].
