Sam Fletcher
Senior Writer
Energy prices soared to the highest levels in months during the final 4 days of November as an arctic cold front moved across the Midwest US toward the East Coast, dumping several feet of snow in its wake.
Temperatures plummeted below freezing along the Texas Gulf Coast. The National Weather Service predicted below-normal temperatures in the eastern US during the first 2 weeks of December. With the spreading cold front, analysts at Enerfax Daily said, "Heating demand across the US will climb to 10% above normal by Dec. 4, from 57% below average [on Nov. 27]." During November, the first complete month of the current heating season, temperatures averaged 4.7% colder than last year but 9.1% warmer than normal, said weather forecasters.
Natural gas futures jumped to $8/MMbtu, pulling crude futures above $60/bbl as post-holiday trading resumed Nov. 27 on the New York Mercantile Exchange. The January contract for benchmark sweet, light crudes gained $1.08 to $60.32/bbl Nov. 27 on the New York Mercantile Exchange. The January natural gas contract bumped up by 28¢ to $8/MMbtu. By Nov. 30, the January crude contract was trading at $63.13/bbl. The January gas contract traded as high as $9.05/MMbtu on NYMEX before closing at $8.84/MMbtu, down by 2.7¢ in that session on forecasts of moderate weather following the cold snap.
Energy prices also were buoyed as the US dollar dropped to a fresh 20-month low against the euro and a 14-year low against the British pound. The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes "has risen by just 0.13 euro over the past week compared to the $1.58/bbl rise in dollar terms," Paul Horsnell, Barclays Capital Inc. of London, reported Nov. 29.
Analysts at Raymond James & Associates Inc. explained, "Many commodities, priced in dollars, become relatively cheaper for buyers outside of the US when the dollar weakens." 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.
Inventories
The US Energy Information Administration said commercial crude inventories in the US fell by 300,000 bbl to 340.8 million bbl during the week ended Nov. 24, ending a 4-week build. Gasoline stocks dropped 600,000 bbl to 201.1 million bbl in the same period. Distillate fuel inventories fell for the eighth consecutive week, down 1 million bbl to 132.8 million bbl in the latest period.
"In just 7 weeks, some 90% of the US oil product overhang has disappeared, and inventories have drawn relative to their 5-year average at a rate of over 1 million b/d," said Horsnell. "Seven weeks ago, the combined build above the 5-year average for just gasoline and diesel combined was 35.4 million bbl, whereas today that combined build stands at just 1.7 million bbl. Heating oil inventories have also fallen relative to the 5-year average, although in general they have spent the whole year describing a very normal pattern from a slightly higher than normal base."
He said, "Heating oil output has been slow to ramp up this year, and from this point the race is on between that ramping up of supply and the ramping up of demand as determined by weather."
On Nov. 30, EIA reported the withdrawal of 32 bcf of natural gas from US underground storage in the week ended Nov. 24. That was above the consensus of Wall Street analysts and compared with withdrawals of 1 bcf the previous week and 51 bcf during the same period last year. US gas storage now stands at 3.4 tcf, up by 185 bcf from year-ago levels and 230 bcf above the 5-year average.
OPEC
Venezuela said it would propose another cut in production quotas by the Organization of Petroleum Exporting Countries at the group's scheduled Dec. 14 meeting in Nigeria. President Hugo Chavez wants to keep futures market prices close to $60/bbl for benchmark US crude.
Meanwhile, Ecuador announced its intention to rejoin OPEC, and Sudan and Angola also expressed interest in joining the cartel. "The sole addition of Ecuador which pumps 540,000 b/d seemed inconsequential. However, by tallying Sudan (500,000 b/d) and Angola (1.4 million b/d) the combined production of these three nations represents approximately 8% of current OPEC production," said Raymond James analysts. "The addition of new member states to the organization would allow OPEC to [wield] further influence in its ability to sway production and pricing of crude oil in world markets. No time frame has been set as to when the new members would be expected to join."
(Online Dec. 4, 2006; author's e-mail: [email protected])