Sam Fletcher
Senior Writer
HOUSTON, Feb. 5 -- Crude prices closed above $59/bb Feb. 2 for the first time in 2007 on the New York market, with reports that a severe cold front will hike heating demand 36% above normal this week in the US Northeast, the largest market for heating oil.
"Commodity prices continued to surge with consensus weather forecasts extending the outlook for colder-than-normal temperatures through the middle of this month," said Robert S. Morris, Banc of America Securities LLC, New York. "Interestingly, both crude oil and natural gas prices started out [last] week by posting a sharp drop when weather forecasts initially turned incrementally bearish but then quickly reversed course when the revised outlooks were issued."
Colder weather and increased demand reminded traders that members of the Organization of Petroleum Exporting Countries earlier agreed to cut production by 500,000 b/d to an official ceiling of 25.8 million b/d effective Feb. 1. While compliance with OPEC's October pledge to cut production by 1.2 million b/d in December remains spotty, Saudi Arabia's announcement that it would reduce its output by 158,000 b/d this month helped boost crude prices.
"Strong US economic data provided a further boost to oil prices with the expectation that a faster-growing economy would ultimately spur greater crude oil and gasoline demand," Morris reported. "Finally, tensions between Iran and the West continued to escalate as Tehran announced that it would hook up 3,000 centrifuges this month to begin large-scale uranium enrichment despite threats from the UN Security Council that it would impose further sanctions later this month if Iran did not roll back its enrichment program."
Meanwhile, oil unions in Nigeria were threatening to go on strike because of escalating violence against oil workers in the Niger Delta. "Leaders of Nigeria's top oil unions said a withdrawal of staff from the Niger Delta remains a possibility," analysts in the Houston office of Raymond James & Associates Inc. said on Feb. 5, the original target date for the strike.
"Violence in the Nigeria Delta has increased over the last 12 months with over 200 people being kidnapped," said Raymond James analysts. "Recently, an attack by local militants forced Royal Dutch Shell PLC to halt 477,000 b/d, almost a quarter of the nation's production. A total withdrawal of workers would force Nigeria's Delta crude production to come to a screeching halt."
In other news, Venezuelan President Hugo Chavez threatened over the weekend to seize control of at least 60% of four heavy-crude joint ventures in his country's eastern Orinoco belt by May 1. Those projects produce 600,000 b/d of oil.
Energy prices
The March contract for benchmark US light, sweet crudes jumped by $1.72 to finish at $59.02 bbl after trading at $57.05-59.25/bbl Feb. 2 on the New York Mercantile Exchange. The front-month contract "rallied back to finish the week $3.60/bbl higher for the second week in a row," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "We are now back to the fourth quarter 2006 value range, and while we remain positive on the medium term direction, we will take a more conservative and neutral approach short term until we get more data confirmation that could justify the continuation of the rally."
The April crude contract gained $1.71 to $59.73/bbl on NYMEX. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by $1.72 to $59.03/bbl. Heating oil for March delivery increased by 2.51¢ to $1.69/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) escalated by 4.76¢ to $1.57/gal.
The March gas contract lost 5.4¢ to $7.48/MMbtu Feb. 2 on NYMEX. On the US spot market, however, gas at Henry Hub, La., jumped 32.5¢ to $8.16 MMbtu. "Composite spot natural gas prices surged more than 11% last week with the extended outlook for continued colder-than-normal temperatures. In fact, a roughly 30% surge in this natural gas price index since mid-January can be largely attributed to a sharp reversal in the weather outlook," Morris said.
In London, the March IPE contract for North Sea Brent crude rose by $1.69 to $58.41/bbl. However, gas oil for February delivery lost $5.25 to $509.50/tonne.
The average price for OPEC's basket of 11 benchmark crudes increased by 16¢ to $53.55/bbl Feb. 2. So far this year, OPEC's basket price has averaged $50.96/bbl, down from an average $61.08/bbl for all of 2006.
Contact Sam Fletcher at [email protected].