Sam Fletcher
Senior Writer
HOUSTON, Jan. 4 -- Prices continued to escalate Jan. 3 with the front-month benchmark crude contract climbing above $63/bbl in the New York market to the highest level since mid-October.
"Oil gained over $2[/bbl] as traders returned from the New Year break to find Gazprom had cut natural gas exports through Ukraine on Jan. 1 after its ex-Soviet neighbor refused to pay a four-fold price increase," said J. Marshall Adkins in the Houston office of Raymond James & Associates Inc. "Russia restored flows a day later when European nations complained that their supplies had also been curtailed."
Adkins reported oil futures prices declined in early trading Jan. 4 after Gazprom announced a 5-year gas supply deal with Ukraine.
Nevertheless, Robert S. Morris at Banc of America Securities LLC, New York, reported Jan. 3: "The focus for crude oil prices starting out the new year has taken an early turn to US summer gasoline supplies with new blending specifications effective Jan. 1 and still constrained refining capacity. We estimate that the voluntary phase-out of the additive methyl tertiary-butyl ether (MTBE) and the mandatory use of ethanol in gasoline production could reduce domestic gasoline output by as much as 3% in addition to restraining imports. Otherwise, the Organization of Petroleum Exporting Countries has indicated that it will likely cut production by 2 million b/d in the second quarter, thus matching the anticipated seasonal drop in demand vs. the first quarter, in order to stabilize oil prices at a West Texas Intermediate spot equivalent level of at least the mid-$50/bbl range, in our opinion."
Energy prices
The February contract for benchmark US light, sweet crudes traded as high as $63.80/bbl before closing at $63.14/bbl, up by $2.10 for the day on the New York Mercantile Exchange. The March contract gained $2.09 to $63.99/bbl. On the US spot market, WTI at Cushing, Okla., was up by $2.41 to $63.45/bbl. Gasoline for February delivery hit a 3-month high of $1.79/gal in the Jan. 3 session on NYMEX before closing at $1.75/gal, up by 2.31¢ for the day. Heating oil for the same month climbed by 2.66¢ to $1.80/gal.
Because of continued forecasts for mild US weather, however, the February natural gas contract fell by 59.9¢ to $10.63/MMbtu, the lowest level since late August for a front-month gas contract on NYMEX. "Total US natural gas heating demand will be slightly more than 25% below normal while temperatures in the Northeast market are expected to average near to above normal much of this week and into next week," said analysts at Enerfax Daily.
Morris of Banc of America Securities said: "Prompt-month NYMEX futures natural gas prices have pulled back closer to actual cash prices. However, January, which represents 26% of a normal winter's total weighted heating degree days, could be critical to the outlook for natural gas prices in 2006. Meanwhile, if temperatures are normal in the first quarter, we project natural gas storage will end March at around 1.07 tcf, or just below the 10-year average. This is a bit higher than we had forecast last month with an overall normal winter due to some loss of natural gas demand to fuel switching to distillate in December and a better-than-anticipated pace of recovery in shut-in offshore Gulf of Mexico natural gas production."
In London, gas oil for January shot up by $32 to $542.75/tonne Jan. 3 on the International Petroleum Exchange. The February contract for North Sea Brent crude jumped by $2.37 to $61.35/bbl.
The average price for OPEC's basket of 11 benchmark crudes increased by $2.13 to $55.60/bbl on Jan. 3.
Contact Sam Fletcher at [email protected].
