Market watch: Energy futures prices rally in uncertain markets

Nov. 21, 2002
Energy futures prices rallied again Wednesday, wiping out most losses of the previous trading session to post strong net gains over 3 days of trading.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 21 -- Energy futures prices rallied again Wednesday, wiping out most losses of the previous trading session to post strong net gains over 3 days of trading.

A relapse of war nerves among traders triggered a strong jump in energy futures prices Monday in New York and London markets. But prices pulled back slightly Tuesday in market corrections.

Wednesday, the December contract for benchmark US light, sweet crudes surged forward 56¢ to $26.98/bbl on the New York Mercantile Exchange. The January position increased 59¢ to $26.09/bbl.

Recent jumps in oil futures prices "may one day prove to represent the tip of a new iceberg regarding angst about Iraq and general supply security measures," said Michael Rothman, first vice-president and senior energy market specialist at Merrill Lynch, Pierce, Fenner & Smith Inc., New York.

Monday's arrival of United Nations weapons inspectors in Iraq and the "looming" Dec. 8 deadline for that country to report all weapons of mass destruction that it is holding "have all the makings of generating concern about a potential confrontation between Baghdad and US-led forces, particularly given the overt background indications about the US readying itself for war," Rothman reported early this week.

That reality is a far cry, he said, from previous assumptions among "most traders and analysts" that "Saddam was off the hook" after agreeing to the arms inspections "and that oil supplies from Iraq were poised to expand on a sustained basis."

In a subsequent report Thursday, Rothman said the continued drop in inventories of oil and petroleum products through October among Organization for Economic Cooperation and Development (OECD) countries "buttresses our contrarian view that crude's last trek to $32(/bbl) was a function of tightening oil balance as opposed to the much maligned 'war premium,' which we think was minimal."

Preliminary data indicate inventories in 26 OECD countries fell by 13.5 million bbl during October, compared with "a historically normal draw of 4 million (bbl)," he said. "Consequently, we estimate inventories stood 87 million bbl below normal on Nov. 1," vs. a 93 million bbl surplus at the end of the 2001-02 winter.

"Storage is sitting at its lowest level, relative to normal, since October 2000," said Rothman. Therefore, he said, "Oil prices have more upside potential than downside risks."

Spurred by forecasts of colder weather, heating oil for December delivery jumped 2.34¢ to 74.51¢/gal Wednesday on NYMEX. Unleaded gasoline for the same month increased by 1.13¢ to 71.29¢/gal.

However, the December natural gas contract dipped 0.7¢ to $4.25/Mcf on NYMEX. "The market opened higher, but dropped significantly before noon before finishing on an upswing near Tuesday's close," analysts at Enerfax Daily reported Thursday. They also noted that bitter cold is forecast for most of the US east of the Rocky Mountains during the next 2 weeks.

In London, the January contract for North Sea Brent oil gained 45¢ to $24.53/bbl Wednesday on the International Petroleum Exchange. However, the December natural gas contract lost 3.7¢ to the equivalent of $3.48/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries rose 26¢ to $24.31/bbl Wednesday.

Contact Sam Fletcher at [email protected]