Sam Fletcher
Senior Writer
HOUSTON, Feb. 18 -- Oil futures prices were volatile Feb. 15, but closed essentially flat in the New York market, giving up earlier large gains as traders locked in profits from recent 10% price rally.
Olivier Jakob at Petromatrix, Zug, Switzerland, noted that crude futures managed last week to hold onto the momentum gained at the end of the previous week to climb above $95/bbl. Crude is still trading near record highs, "but ever since it entered the $85-100/bbl range, open interest has started to decline," Jakob said.
Still, among commodity markets in the week ended Feb. 15 the energy sector was the main source of positive returns with crude oil and heating oil gaining over 7%, said Adam Sieminski, chief energy economist, Deutsche Bank AG, New York. "A cold spell in the US, geopolitical pressures this time in Venezuela, and a relatively bullish set of Department of Energy inventory figures contributed to the latest rally in crude oil prices. This occurred despite the International Energy Agency revising down its estimate for global oil demand for 2008 by 200,000 b/d to 1.6 million b/d," Sieminski said.
In its latest monthly report, the Organization of Petroleum Exporting Countries reduced its 2008 demand forecast by 100,000 b/d, while indicating that it might reduce production in the second quarter if global inventories of crude continue to rise.
The Federal Reserve said Feb. 15 that the trade deficit fell in December and for 2007 as a whole with the US exporting more goods, while industrial production rose last month in line with analyst expectations.
Nonetheless, in an evening speech Feb. 14 at the Cambridge Energy Research Associates' annual energy conference in Houston, former Federal Reserve Chairman Alan Greenspan said there is a "50% or better" chance that the US will experience an economic recession that will blunt energy demand, but because "business was in such extraordinary good shape before this problem hit," credit availability has not yet dried up for US industry. "We are at stall speed in the US but haven't yet seen the discontinuity that characterizes recession," he told an audience of 900 industry representatives.
Greenspan said it is "quite remarkable" that the US economy is able to do reasonably well with oil prices near historic highs. He also remarked, "Global warming is real, but its solution is going to be much more difficult than we'd like to admit."
He said, "There's a presumption that we'll solve this [fuel and climate] problem with new technologies. I wish that were true." But then he also said that the use of electric-powered vehicles to displace much of the 9 million b/d of gasoline and 2.5 million b/d of diesel fuel used on US highways to electric "will have a large impact on world petroleum demand."
Greenspan advocated greater use of nuclear energy and warned that a "mandatory cap on carbon emissions risks capping energy inputs into the gross domestic product while lowering production and increasing unemployment." He said, "I'm a strong advocate of competitive market capitalism. It's the only viable system through which societies can produce significant material well being. However, with its increasing required conceptual inputs and technology, income inequality has risen. We cannot have a system, no matter how powerful, that doesn't have the support of the people."
In a separate report, Paul Horsnell at Barclays Capital Inc., London, noted that supply-side changes have been the key source of energy price variability since 2004. Moreover, he said world oil demand is now heavily concentrated outside of the member nations of the Organization for Economic Cooperation and Development, particularly in the Middle East and China. "So the link from the day-to-day flow of US economic data onto oil demand has become an extremely tenuous one," he said.
Horsnell noted indications of weak demand within OECD, "especially in the UK, Japan, and Korea." He said, "In the case of the latter two the weakness appears to be more weather than economy related, but overall OECD demand is continuing to follow the weak path it has stuck to for the past three years. By contrast, Chinese demand has accelerated in the latest data, with a sharp increase in diesel demand due to a relaxation in the degree of shortages, and also due to the knock-on effects of the start of a period of more serious problems in the power sector. On the supply side, the data continue to lead us to project another fairly weak year for non-OPEC prospects."
Barlays Capital maintains its forecast of negligible non-OPEC supply growth in 2008. "Indeed, stripping out biofuels and Canadian oil sands, we expect conventional non-OPEC oil supply to fall," Horsnell reported. "For 2008, we see the major [non-OPEC crude supply] increments as coming from Brazil (314,000 b/d), Russia (203,000 b/d), and Azerbaijan (176,000 b/d). There is some downwards risk in the 2008 numbers, in that some of the Brazilian projects may yet slip, and Russia has begun the year with a 70,000 b/d decline in January." However, he said, "The key thing about the three gainers (a combined rise of 693,000 b/d) is that they are offset by the three major sources of decline. We are currently projecting the combined decline in 2008 from Mexico, UK, and Norway to amount to 692,000 b/d."
Horsnell said, "For conventional non-OPEC oil supply to fall outside of the former Soviet Union is not a new phenomenon; indeed output is already some 2 million b/d below the 2002 peak. However, a fall in conventional oil output across non-OPEC as a whole is somewhat more noteworthy an event."
Energy prices
The March crude contract of benchmark US sweet, light crudes traded at $94.66-96.67/bbl Feb. 15 before closing at $95.50/bbl, up just 4¢ for the day on the New York Mercantile Exchange. The April contract dipped 10¢ to $95.45/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 4¢ to $95.51/bbl. Heating oil for March delivery lost 1.97¢ to $2.65/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) continued climbing, up 1.77¢ to $2.49/gal.
The March natural gas contract price dropped 11.2¢ to $8.66/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 36¢ to $8.71/MMbtu.
In London, the new front-month April IPE contract for North Sea Brent increased 53¢ to $94.63/bbl. The March contract for gas oil continued to increase, up $6.25 to $853.50/tonne.
The average price for OPEC's' basket of 12 benchmark crudes was up 94¢ to $91.73/bbl on Feb.15. So far this year, OPEC's basket price has averaged $88.33/bbl vs. $69.10/bbl for all of 2007.
Contact Sam Fletcher at [email protected].
