MARKET WATCH Energy prices fall in profit-taking before weekend

Dec. 12, 2005
Energy prices fell Dec. 9 in profit-taking ahead of the weekend as traders seemed confident about supply in a current US cold snap.

Sam Fletcher
Senior Writer

HOUSTON, Dec. 12 -- Energy prices fell Dec. 9 in profit-taking ahead of the weekend as traders seemed confident about supply in a current US cold snap.

As expected, ministers of the Organization of Petroleum Exporting Countries took no action at their extraordinary meeting Dec. 12 in Kuwait City but agreed to meet again Jan. 31 in Vienna to review the market outlook for the second and third quarters of 2006 when demand is expected to be seasonally lower. That means no change at this time in the official production ceiling of 28 million b/d adopted in June for the 10 OPEC members aside from Iraq, which is trying to bring its production back to prewar levels.

"OPEC's spare capacity will reach the comfortable level of around 2.5 million b/d by the end of this year, and we expect to add another million barrels per day capacity in 2006," said Ahmad Fahad Al-Ahmad Al-Sabah, conference president of the cartel and energy minister for Kuwait, at that meeting. "Much of this will come in the form of light and medium crudes, which are heavily in demand. OPEC is ready to bring this capacity on stream at short notice, should the market require it."

He warned, "Downstream, the situation, however, is different. The products market remains under pressure from the downstream bottlenecks with which we have now become familiar, especially in major consuming regions." He said, "We feel that consuming countries should pay more attention to relieving the constraints in the refining industry."

Analysts at Friedman, Billings, Ramsey & Co. Inc. said, "Although hurricanes, production downtime, and delays have resulted in a minimal increase to non-OPEC supply growth in 2005 (only 200,000 b/d vs. the 10-year average of 1 million b/d), slowing demand and a high level of output from OPEC has resulted in a 133 million bbl (3.3%) increase to global crude oil and refined product inventories this year."

On Dec. 9, the US Minerals Management Service listed as still evacuated 126, or 15.4%, of the manned platforms in the Gulf of Mexico. It reported 447,425 b/d of crude and 2.3 bcfd of natural gas production was still shut in. Cumulative production lost Aug. 26-Dec. 9 totaled 100.4 million bbl of crude and 519.2 bcf of natural gas. That's equivalent to 18.3% of the crude and 14.2% of the natural gas produced annually from federal leases in the gulf.

"Although very difficult to quantify, additional shut-in natural gas production (not monitored by the MMS) from onshore southern Louisiana parishes impacted by the hurricanes (possibly about 500 MMcfd) could alter this number further," said analysts at Raymond James & Associates Inc.

Energy prices
The January natural gas contract hit a record high of $15.52/MMbtu in overnight electrical trading Dec. 9 before closing at $14.31/MMbtu, down by 68.2¢ for the day on the New York Mercantile Exchange. "Even with the major correction, prices were up 2.7% last week and have more than doubled in the past year," said analysts at Enerfax Daily on Dec. 12. "Forecasters said cold weather could linger for another 2 weeks, keeping demand high from the Midwest to the Northeast."

The January contract for benchmark US light, sweet crudes traded at $59.03-61.50/bbl on NYMEX but closed at $59.39/bbl for a loss of $1.27. The February contract was down by $1.23 to $60.38/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., lost $1.29 to $59.40/bbl. Gasoline for January delivery dropped 2.17¢ to $1.60/gal on NYMEX. Heating oil for the same month fell by 5.14¢ to $1.73/gal. In the US retail market, heating oil averaged $2.409/gal last week, down a mere 0.9¢ from the previous week but up 22% from a year earlier, said Enerfax analysts.

In London, the January contract for North Sea Brent crude declined by $1.36 to $57.31/bbl on the International Petroleum Exchange. But gas oil for December increased by $7 to $510.25/tonne.

The average price for OPEC's basket of 11 benchmark crudes rose by $1.01 to $53.95/bbl on Dec. 9. So far this year, OPEC's basket price has averaged $50.52/bbl.

Contact Sam Fletcher at [email protected].