Market watch, Dec. 13

Even as winter storms lashed across the Midwest US, futures prices for natural gas and home heating oil declined Tuesday�apparently on expectations of a temporary break in the weather. The January natural gas contract dropped to $8.145/Mcf, down $1.268 from Monday's record high on the New York Mercantile Exchange.


Even as winter storms lashed across the Midwest US, futures prices for natural gas and home heating oil declined Tuesday�apparently on expectations of a temporary break in the weather, analysts reported.

The January contract for natural gas fell to $8.145/Mcf, down $1.268 from Monday's record high on the New York Mercantile Exchange. But industry experts expect this general cycle of high natural gas prices to continue through next year and beyond, although down from winter peaks.

Cambridge Energy Research Associates are predicting that average annual spot prices for gas at the Henry Hub will be in a record high range of $5.50-$6.50/MMBtu through 2001.

"The era in which US Lower 48 gas supplies could respond quickly and in large volume (to sharp increases in demand) may be ending, while replacement supplies are still on the horizon beyond 2001," they said in a report issued this week. It will take time and money to bring those new gas supplies�from Canada, deepwater Gulf of Mexico, the Arctic, and LNG�to market, they said.

Home heating oil for January delivery dropped 2.15� to 96.12�/gal on the NYMEX, while unleaded gasoline for the same month dipped 0.01� to 76.53�/gal.

However, the January position for benchmark US light, sweet crude rose 18� to $29.68/bbl, while the February contract was up 6� to $29.10/bbl. Both contracts continued to rise in after-hours electronic trading to $29.90/bbl and $29.30/bbl, respectively, following a report by the American Petroleum Institute of sizeable drawdowns from US inventories of both crude and distillate the previous week.

In a separate report early Wednesday, API officials said US refineries processed 15.4 million b/d of crude during November. That's "a record for this time of year" and 2.2% more than during the same time last year, they said.

That included production of more than 3.8 million b/d of distillate fuel, used for diesel and home heating oil. "This was only the second time in history that this much had been produced in just one month, and 5.5% more than in November 1999's distillate output," API officials reported.

US refineries have been operating above 90% capacity since May, hitting 92.7% during November�substantially higher than the 82.1% total US industrial utilization rate, officials said.

In London, the January contract for North Sea Brent crude dropped 48� to $27.06/bbl Tuesday on the International Petroleum Exchange. The January natural gas contract gained 14� to the equivalent of $4.35/Mcf on the IPE.

Meanwhile, the Royal Bank of Scotland reported UK North Sea oil production fell for the fourth consecutive month to 2.2 million b/d during October. That fall is "not the start of any meaningful decline in oil production, but a modest and temporary decline across a number of large fields," bank officials said.

On the Singapore exchange, the January contract for Brent crude fell 48� to $27.06/bbl. The February contract fell 9� to $27.37.

Obaid Bin Saif Al-Nasseri, energy minister for the United Arab Emirates, said Tuesday that an agreement to cut oil production is possible at the next meeting of the Organization of Petroleum Exporting Countries in January.

The average price for OPEC's basket of seven crudes lost 27� to $25.15/bbl Tuesday.

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