MARKET WATCHSupply fears raise crude prices

Jan. 7, 2005
After declining through most trading sessions during the first week of the new year, energy futures prices soared Jan.6 amid traders' concerns about escalating violence in Iraq and uncertainty over what action ministers of the Organization of Petroleum Exporting Countries may take at their Jan. 30 meeting.

Sam Fletcher
Senior Writer

HOUSTON, Jan. 7 -- After declining through most trading sessions during the first week of the new year, energy futures prices soared Jan.6 amid traders' concerns about escalating violence in Iraq and uncertainty over what action ministers of the Organization of Petroleum Exporting Countries may take at their Jan. 30 meeting.

Adnan Shihab-Eldin, the new acting secretary general for OPEC, earlier said crude prices "appear to be moving toward [market] fundamentals" in a retreat from nominal record high levels late last year. There are growing indications that OPEC members may change the target price band that they established in 2000 at $22-28 bbl to a higher level centered on an average price of $35/bbl for their basket of seven benchmark crudes. OPEC crude has been trading above the previous ceiling of $28/bbl since December 2003.

At their last meeting in December, OPEC ministers voted to reduce overproduction by 1 million b/d effective Jan. 1, while retaining their previous total production quota of 27 million b/d for the 10 members except Iraq (OGJ Online, Dec. 10, 2004). Indications are that OPEC members have moved quickly to comply with that agreement. They are expected to reassess the world supply and demand for crude at their next meeting and to take appropriate action.

Energy prices
Both the February and March contracts for benchmark US light, sweet crudes advanced by $2.17 to $45.56/bbl and $45.78/bbl, respectively, Jan. 6 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by the same amount to $45.57/bbl. Heating oil for February delivery jumped by 6.29¢ to $1.28/gal, while gasoline for the same month escalated by 5.19¢ to $1.22/gal on NYMEX.

The February natural gas contract shot up by 21.6¢ to $6.05/MMbtu on NYMEX after the Energy Information Administration reported a bigger-than-expected withdrawal of 151 bcf of gas from US underground storage during the week ended Dec. 31. US gas storage now stands at nearly 2.7 tcf, up 79 bcf from year-ago levels and 279 bcf above the 5-year average for this time of year (OGJ Online, Jan. 6, 2005).

In London, the February contract for North Sea Brent crude climbed by $2.34 to $42.85/bbl on the International Petroleum Exchange.

OPEC's basket price increased by 95¢ to $38.19/bbl on Jan. 6.

Contact Sam Fletcher at [email protected]