Market watch: Energy futures prices increase as Isidore threatens Gulf of Mexico

By OGJ editors

HOUSTON, Sept. 23 -- Energy futures prices generally continued to move up in New York and London markets Friday, with the likelihood of additional increases this week, analysts reported Monday.

"We believe the combination of no increase in quotas from the Organization of Petroleum Exporting Countries last week, continued low levels of Iraqi crude exports, a tightening inventory position in Petroleum Administration for Defense District 2 in the (upper Midwest) US, and continuing aggressive US rhetoric toward Iraq will keep oil prices firm in the near term," said Matthew Warburton at UBS Warburg LLC in New York.

But the more immediate threat posed by Hurricane Isidore to oil and natural gas production in the Gulf of Mexico is likely to "take center stage this week" as the major factor influencing energy futures prices, said Robert Morris at Salomon Smith Barney Inc., New York.

Isidore strengthened into a Category 3 (out of five categories) hurricane Sunday evening, and could pick up more force if it moves from Mexico's Yucatan Peninsula back into the gulf, as expected. Morris reported that the "vast majority" of predictive weather models project Isidore will strike somewhere along the US Gulf Coast by Thursday or Friday.

The National Hurricane Center Monday downgraded Isidore to a tropical storm as it briefly weakened over Yucatan, but the center cautioned that Isidore is likely to regain hurricane strength as it moves back out over the gulf.Over the weekend, operators began evacuation of nonessential personnel from platforms in the gulf. But the storm could also disrupt oil shipping and refining operations, depending on where it makes landfall in the US. Present projections put that possibility at almost any point along the Texas, Louisiana, Mississippi, or Alabama coasts.

Meanwhile, another tropical depression has developed in the Atlantic and is moving in a similar direction as Isidore. If it strengthens into a tropical storm later this week, it will be named Lili.

On Friday, the October contract for benchmark US light, sweet crudes gained 11¢ to $29.61/bbl on the New York Mercantile Exchange, while the November position increased by 10¢ to $29.84/bbl, largely as a result of Isidore, said analysts. However, reports that several major oil companies have signed contracts that could nearly double Iraq's oil exports to 1.9 million b/d next week triggered some selling Friday, they reported.

Unleaded gasoline for October delivery bumped up 1.33¢ to 81.41¢/gal Friday, but heating oil for the same month dipped 0.11¢ to 78.7¢/gal.

The October contract for natural gas dropped 9.8¢ to $3.76/Mcf Friday on NYMEX, "as marketers grabbed profits ahead the weekend in a crapshoot of uncertainty over Hurricane Isidore, betting against a worst-case scenario. However, the market is still hovering at 15-month highs," said analysts at Enerfax Daily.

In London, the November contract for North Sea Brent oil gained 5¢ to $28.43/bbl on the International Petroleum Exchange. The October natural gas contract inched up 0.3¢ to the equivalent of $2.63/Mcf on the IPE.

The average price for OPEC's basket of seven benchmark crudes increased by 15¢ to $27.60/bbl Friday.

For all of last week, however, that basket price averaged $27.32/bbl, down 20¢ from the previous week. So far this year, OPEC's basket price has averaged $23.35/bbl, up from $23.12/bbl for all of 2001.