Sam Fletcher
Senior Writer
HOUSTON, Mar. 17 -- Energy prices soared Mar. 16 on the New York futures market as US and Iraqi troops launched the biggest air assault since the 2003 invasion of Iraq against insurgents in a 100-sq-mile area in the center of the country.
The surprise assault, named Operation Swarmer, continued Mar. 17. Meanwhile, Deutsche Bank AG analysts expressed concern about the ability of the Organization of Petroleum Exporting Countries to maintain its crude output "at the implied required levels for the second half of 2006 in view of serious production issues in Iraq, Nigeria, Venezuela, and Iran." They said, "We suspect that actual spare capacity in OPEC is not growing much."
OPEC members agreed at their Mar. 8 meeting to extend the assigned production quota of 28 million b/d set last June. However, the US Energy Information Administration reported the 10 OPEC members affected by that quota were producing at or slightly below the ceiling in recent months, down to 27.9 million b/d in February (OGJ Online, Mar. 9, 2006). Iraq has not yet resumed its prewar production levels.
"Markets and OPEC ministers are reflecting some unease over the direction of the fundamentals, but geopolitical concerns continue to dominate oil trading activity," said Deutsche Bank analysts. They said, "The biggest threat to growth in global oil demand is likely to come in the form of a slowdown in [gross domestic product] either from the slow rise in interest rates as central bankers tackle inflation, a quick shot to consumer confidence that would accompany fear of supply interruption (a confrontation with Iran?), or the impact of an unpredictable avian flu pandemic. Another possible source of demand pressure, however, could come in the form of the relentless impact of prices and policy decisions on consumer demand."
Natural gas
Ronald J. Barone, managing director of equity research for the Natural Gas & Electric Utilities Group of UBS Securities LLC, New York, said, "The recent bearish momentum during the winter season has brought down [natural gas] prices enough to entice many industrial end-users back into the market."
Prices have fallen to nearly $7/MMbtu recently from 2005's full-year average of $8.54/MMBTU, he noted.
"End-users who purchased gas on monthly index and carried double-digit prices following supply disruptions in the Gulf [of Mexico] are forgoing any additional downside for long-term security, thereby providing what appears to be a near-term floor for gas prices," Barone said. "The Industrial Energy Consumers of America (IECA), for example, reports that some industrials are even hedging 1 and 2-year strips going forward. Some others, on the other hand, believe that the market is void of any fundamental forces that can support current prices and are holding out for a further correction in the market."
Robert S. Morris at Banc of America Securities LLC, New York, said: "The top domestic natural gas producers replaced 140% of their US natural gas production last year, compared with 120% in 2004 and a 5-year average of 113%, underscored by a 16% year-over-year increase in the domestic gas rig count, an estimated 3.8% drop in 2005 production due to hurricane-related shut-ins, and a slightly higher percentage of proven undeveloped bookings."
Morris said, "The major [integrated companies] replaced only 80% of their domestic natural gas production in 2005, excluding revisions, compared with 189% for the independents, reflecting the independents' greater focus on domestic natural gas projects [and] plays."
Energy prices
The April contact for benchmark US light, sweet crudes jumped by $1.41 to $63.58/bbl Mar. 16 on the New York Mercantile Exchange. The May contact climbed by $1.26 to $65.10/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by $1.40 to $63.58/bbl. Gasoline for April delivery gained 4.53¢ to $1.87/gal. Heating oil for the same month rose by 3.08¢ to $1.81/gal. The April natural gas contract escalated by 12.4¢ on short-covering as the oil market climbed, said analysts at Enerfax Daily.
In London, the April IPE contract for North Sea Brent crude dipped by 3¢ to $62.91/bbl. Gas oil for April lost $12 to $555.25/tonne.
The average price for OPEC's basket of 11 benchmark crudes fell 85¢ to $57.45/bbl on Mar. 16.
Contact Sam Fletcher at [email protected].
