Market watch: Colder weather pushes up energy futures prices

Colder winter weather helped boost energy futures prices Friday, while the United Nations' agreement with Iraq on weapons inspections sparked some nervous short covering of some energy contracts.

By OGJ editors

HOUSTON, Nov. 18 -- Colder winter weather helped boost energy futures prices Friday, while the United Nations' agreement with Iraq on weapons inspections sparked some nervous short covering of some energy contracts, analysts reported Monday.

Natural gas for December delivery gained 11.2¢ to $3.98/Mcf on the New York Mercantile Exchange, while heating oil for the same period increased 1.16¢ to 68.85¢/gal.

The US Energy Information Administration last week reported the withdrawal of 48 bcf of gas from underground storage during the week ended Nov. 8, which was "well above" Wall Street's expectations and compares with injections of 35 bcf during the same period last year. "Supply is down as much as 4-5% below year-ago levels," analysts at Enerfax Daily reported Monday. Decreased supply coupled with predictions for colder US weather could "set the stage for a market rally to $4.15-4.20(/Mcf) today," they said.

US temperatures during the period reported by EIA were roughly 36% lower than the same time last year and essentially the same as the 10-year average. Meanwhile, a cold front has hit the US Northeast, the world's biggest heating oil market, where low temperatures are expected to continue through this week. The US Midwest also is facing snowstorms, with a generally colder winter already predicted for this year.

Meteorologists at Salomon Smith Barney Inc. last week noted that recent thunderstorms in the Indian Ocean and western Pacific might indicate development of a Madden-Julian Oscillation; such oscillations, they said, historically have been associated with most of the extreme cold periods in the US. If such a condition develops, meteorologists predict stronger and larger intrusions of arctic air and stormy conditions into the US, beginning in December.

Oil prices hit a 5-month low last week after Iraqi President Saddam Hussein accepted UN weapons inspectors under a stricter new disarmament program. An advance team of UN inspectors was scheduled to arrive in Iraq on Monday for initiation of the inspection program on Dec. 23.

However, Robert Morris at Salomon Smith Barney said Monday, "The first real test of Iraq's willingness to truly cooperate will come on Dec. 8 when it must provide the UN a full accounting of its weapons programs and any weapons of mass destruction."

As Morris noted, the US continues to insist that any failure by Iraq to comply fully with inspection terms "would be grounds for military action." Thus, he said, "The strong possibility of war at some point still exists."

Both the December and January contracts for benchmark US light, sweet crudes rose 22¢ Friday to $25.51/bbl and $24.71/bbl, respectively, on NYMEX. However, unleaded gasoline for December delivery dipped 0.03¢ to 69.73¢/gal.
In London, the January contract for North Sea Brent oil gained 35¢ to $23.35/bbl Friday on the International Petroleum Exchange. The December natural gas contract lost 3.2¢ to the equivalent of $3.70/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 24¢ to $23.10/bbl Friday. For the full week, however, that average price was down 96¢ from the previous week to $23.43/bbl.

So far this year, the OPEC basket price has averaged $23.91/bbl, including averages of $26.09/bbl during the third quarter and $27.32/bbl during October. That compares to an average price of $23.12/bbl for all of 2001.

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