MARKET WATCHEnergy prices decline as Nigerian conflict cools

Oct. 5, 2004
Energy futures prices declined Monday as political tensions eased in Nigeria, but analysts said they're not sure if the oil market may be poised for further retreat or gathering strength for a renewed climb to higher prices.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 5 -- Energy futures prices declined Monday as political tensions eased in Nigeria, but analysts said they're not sure if the oil market may be poised for further retreat or gathering strength for a renewed climb to higher prices.

Despite a cease-fire agreement between rebel and government forces in Nigeria, the Royal Dutch-Shell Group said Monday it had not resumed full operations in the oil-rich Niger Delta. Shell earlier shut in production of 30,000 b/d of oil and 27 MMcfd of natural gas and withdrew some 300 workers from the delta because of earlier fighting.

Ivan's impact still felt
Meanwhile, because of loss of Gulf of Mexico production to Hurricane Ivan, Banc of America Securities LLC, New York, raised its fourth quarter spot market price forecasts Monday to $46/bbl for West Texas Intermediate, from $39/bbl previously; and to $5.65/Mcf for natural gas, from $5.50/Mcf earlier. It also increased its 2005 price projections to $38/bbl for WTI, from $35/bbl; and to $6.15/Mcf for gas, from $6/Mcf.

Friday, the US Minerals Management Service reported 484,458 b/d of crude and 2.3 bcfd of natural gas in the Gulf of Mexico were still shut in as a result of Ivan's pass through waters 3 weeks ago.

"We believe the cumulative crude oil production that will end up being shut in, or 'lost' as a result of the damage caused by Ivan (reserves are not lost, but the shut-in production is pushed out to the end of the life of the field or reservoir) will equate to 7-10% of current total US crude oil inventories," said Robert S. Morris, Banc of America analyst.

"Even with the impact of Hurricane Ivan, natural gas storage should still exceed 3.2 tcf heading into this winter," he said. "However, even with this record high beginning-of-November storage level, North American natural gas supply and demand should still be just shy of being in balance looking ahead to 2005." Moreover, he said, "Ivan has also heightened concerns regarding the ability of refiners to replenish heating oil inventories leading up to winter, which could provide added momentum to natural gas prices if a colder-than-normal winter ensues."

Energy prices
The November contract for benchmark US light, sweet crudes lost 21¢ to $49.91/bbl Monday on the New York Mercantile Exchange, while the December position was down by 18¢ to $49.51/bbl. On the US spot market, WTI at Cushing, Okla., dropped 22¢ to $49.91/bbl. Gasoline for November delivery fell by 1.53¢ to $1.34/gal on NYMEX. Heating oil for the same month decreased by 1.02¢ to $1.39/gal. The November natural gas contract dropped 4.7¢ to $6.73/Mcf, "pressured by a lagging [spot gas] cash market that was still $1[/Mcf] below futures [prices], despite a big rally as mild weather continues to slow demand," said analysts Tuesday at Enerfax Daily.

In London, the November contract for North Sea Brent crude lost 43¢ to $46.19/bbl on the International Petroleum Exchange.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes dipped by 1¢ to $43.28/bbl Monday.

Contact Sam Fletcher at [email protected]