MARKET WATCHCold weather pushes up oil, gas prices

Nov. 29, 2006
An arctic cold front boosted oil and natural gas prices to the highest levels in months as it dumped 2 ft of snow from Washington to Colorado Nov. 28.

Sam Fletcher
Senior Writer

HOUSTON, Nov. 29 -- An arctic cold front boosted oil and natural gas prices to the highest levels in months as it dumped 2 ft of snow from Washington to Colorado Nov. 28.

Snow came down so fast and heavy that World Cup officials were forced to cancel ski practice near Vail, Colo. Temperatures were predicted to plummet to near-freezing Nov. 30 along the Texas Gulf Coast as the coldest arctic front so far this winter moves southeastward from the central US. "As winter weather bares its teeth, heating oil use should rise and drain stockpiles, which stood at 60.2 million bbl last week," said analysts in the Houston office of Raymond James & Associates Inc.

Another current support of oil prices is the weak dollar, which hit a 20-month low against the euro. "Many commodities, priced in dollars, become relatively cheaper for buyers outside of the US when the dollar weakens," said Raymond James analysts. They also noted a new report by McKinsey & Co. that projects world energy demand to rise 2.2%/year through 2020, outpacing the 1.6% growth seen in the past decade.

US inventories
The US Energy Information Administration said Nov. 29 that commercial crude inventories fell by 300,000 bbl to 340.8 million bbl during the week ended Nov. 24. Gasoline stocks dropped 600,000 bbl to 201.1 million bbl in the same period. Distillate fuel inventories lost 1 million bbl to 132.8 million bbl, with a decline in heating oil wiping out slight gains in diesel fuel supplies.

Imports of crude into the US were down by 732,000 b/d to 9.8 million b/d during that week. Input into US refineries, however, increased by 169,000 b/d to 5.2 million b/d with units operating at 88.1% of capacity. Gasoline production increased to 8.9 million b/d during that period while distillate fuel production dipped to 4 million b/d.

Energy prices
The January contract for benchmark US light, sweet crudes touched $61.20/bbl, the highest level in a month, in intraday trading before closing at $60.99/bbl, up by 67¢ for the day on the New York Mercantile Exchange. The February contract gained 70¢ to $62.39/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by 67¢ to $61/bbl. Unleaded gasoline for December delivery climbed by 3.29¢ to $1.63/gal on NYMEX. Heating oil for the same month increased by 2.31¢ to $1.73/gal.

The December natural gas contract traded as high as $8.38/MMbtu before expiring at $8.32/MMbtu, up by 32¢ for the day. That was the highest price for a front-month gas contract in 10 months, observers reported. The new front-month January gas contract gained 20.2¢ to $8.56/MMbtu.

In London, the January IPE contract for North Sea Brent crude rose by 77¢ to $61.21/bbl. The December gas oil contract was up by $9 to $547.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes increased by 72¢ to $56.48/bbl on Nov. 28.

Contact Sam Fletcher at [email protected].