MARKET WATCHCrude, natural gas prices climb

Feb. 28, 2005
Crude prices continued to climb Feb. 25, while natural gas prices made a strong increase, buoyed by colder-than-normal weather in the Northeast US.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 28 -- Crude prices continued to climb Feb. 25, while natural gas prices made a strong increase, buoyed by colder-than-normal weather in the Northeast US.

"Crude oil prices led the surge last week, rising more than 5% to a 4-month high underscored by colder-than-normal temperatures across both Northwestern Europe and the Northeastern US. Temperatures are expected to remain below normal west of the Rockies this week in the US," said Robert S. Morris, Banc of America Securities LLC, New York, in a Feb. 28 report.

"Underlying the recent crude oil price strength are also fears that global demand will outpace supply growth this year," he said. Morris noted that, like the Organization of Petroleum Exporting Countries and the Paris-based International Energy Agency in previous weeks, the Centre for Global energy Studies in London last week raised its 2005 forecast of global demand growth for crude, up "by 14% to 1.6 million b/d, while the US economy grew at a faster than initially reported 3.8% annual rate in the fourth quarter of 2004."

Morris said, "The cold snap across the eastern half of the US along with the strength [in] oil prices prompted an increase in composite spot natural gas prices for the first time in 6 weeks," despite a report last week of a below-consensus amount of natural gas withdrawn from US underground storage during the week ended Feb. 18. So far this year, weighted winter temperatures have been "roughly 2% warmer than normal," he said, with US gas storage now at 1.72 tcf and 6 weeks to go in the traditional winter heating season.

Price forecasts adjusted
"The oil supply-demand equation remains tight, as slowing supply growth in many key areas and insatiable demand from industrializing giants continue to drive prices higher. The US natural gas markets, on the other hand, have been depressed due to extraordinarily mild weather that has sharply reduced demand over the past 9 months," said analysts in the Houston office of Raymond James & Associates Inc., in a separate Feb. 28 report.

"With the recent data showing Russian oil production falling for the fourth consecutive month, we are raising our 2005 oil [price] forecast from $44.13[/bbl] to $46.50[/bbl] and our 2006 oil [price] forecast from $40[/bbl] to $47[/bbl,]" said Raymond James analysts.
They lowered their 2005 price forecast for natural gas to an average $6.80/Mcf from $7.05/Mcf previously, although "underlying, non-weather-driven fundamentals for natural gas remain extremely bullish." Therefore, the analysts raised their 2006 and long-term gas price forecasts to $7.50/Mcf from $6.50/Mcf previously.

Raymond James also added 2%/year inflators to its long-term price outlooks for both oil and natural gas "to reflect a normal upward trend in commodity prices," analysts said. "Surges in gas prices are entirely possible over the next 12 months, depending on the weather. Indeed, if gas were to trade in parity with heating oil, it could easily spike to $8[/Mcf] or higher," they predicted.

Energy prices
Both the April and May contracts for benchmark US light, sweet crudes increased by 10¢ Feb. 25 on the New York Mercantile Exchange, to $51.49/bbl and $51.95/bbl respectively. On the US spot market at Cushing, West Texas Intermediate at Cushing, Okla., gained 20¢ to $50.95/bbl. Gasoline for March delivery lost 2.93¢ to $1.25/gal on NYMEX. Heating oil for the same month was down by 1.09¢ to $1.45/gal.

The new near-month April natural gas contract jumped by 26.1¢ to $6.72/MMbtu on NYMEX, "driven by cold weather forecasts for the next couple of weeks and steady technical buying after it broke through resistance, despite a soft cash [natural gas spot] market, said analysts at Enerfax Daily.

In London, the April contract for North Sea Brent crude increased by 17¢ to $49.61/bbl on the International Petroleum Exchange.

The average price for OPEC's basket of seven benchmark crudes was up by 25¢ to $45.49/bbl on Feb. 25. However, for the week as a whole, OPEC's basket price averaged $43.96/bbl, up by $2.28 from the previous week.

So far this year, OPEC's basket price has averaged $40.96/bbl, up from an average price of $36.05/bbl for all of 2004.

b>Contact Sam Fletcher at [email protected]