Market watch: Supply, demand factors push up oil futures prices

Energy futures prices popped up again Thursday, stimulated by the fall of US inventories of oil and petroleum products and by President George W. Bush's sword-rattling criticisms of Iraq.

By OGJ editors

HOUSTON, Sept. 6 -- Energy futures prices popped up again Thursday, stimulated by the fall of US inventories of oil and petroleum products and by President George W. Bush's sword-rattling criticisms of Iraq.

The October contract for benchmark light, sweet crudes gained 71¢ to $28.98/bbl on the New York Mercantile Exchange, while the November position jumped by 74¢ to $29.01/bbl.

Home heating oil for October delivery shot up 2.28¢ to 77.31¢/gal in a market where price movement usually is measured in fractions of a penny. Unleaded gasoline rose 1.44¢ to 77.66¢/gal.

Combined NYMEX gains Wednesday and Thursday more than recouped the large losses Tuesday on most petroleum commodities, with the sole exception of unleaded gasoline that was still down 1.06¢/gal over the 3 days of trading.

The October natural gas contract increased by 14.9¢ to $3.34/Mcf on NYMEX. "The market opened lower, but quickly turned around after the (US Energy Information Administration) reported...65 bcf was injected into (US underground) storage last week, considerably less than a year ago. The market immediately fell to $3.10(/Mcf) on release of the report, but early selling into the release had pre-empted the EIA report itself, so a short-covering rally quickly developed and spread," analysts at Enerfax Daily reported Friday. They said the potential of tropical storms in the gas-prone Gulf of Mexico also contributed to that price hike.

"Meanwhile, some producers have recently shut in some of their Rocky Mountain natural gas production due to abnormally low prices, although we do not believe curtailments to date will have a significant impact on third quarter reported volumes," said Robert Morris at Salomon Smith Barney Inc. in New York.

Composite spot prices for Rocky Mountain gas averaged 78¢/Mcf last week, compared with a 12-region composite average of $3.05/Mcf, he said. Rocky Mountain gas historically trades at a steeper discount relative to Henry Hub gas prices during the summer because of the lack of industrial and heating load demand in that region and limited pipeline capacity to move the excess gas to other markets.

"The situation has been exacerbated this summer due to a number of factors, including relatively subdued industrial demand in California, ample hydroelectric supplies in the Pacific Northwest, and mild seasonal temperatures in the Rockies and West Coast," Morris said Thursday in his weekly exploration and production report. "However, much of the recent collapse in Rocky Mountain prices was due to maintenance work on the Northwest Pipeline, which has limited southbound flow out the region."

That maintenance has since been completed, and Rocky Mountain gas prices rebounded to $1/Mcf last week, he said.

"Interestingly, the Rockies is the only region in the US where production is actually growing, with volumes up more than 1 bcfd over the past 3 years, although pipeline take-away capacity has not kept pace with this growth," said Morris. "However, the gas transmission bottleneck will likely be alleviated with the 900 MMcfd expansion of the Kern River Gas Transmission System, which should more than double the pipeline's capacity to southern California by May 2003."

In London, the October contract for North Sea Brent oil gained 56¢ to $27.66/bbl Thursday on the International Petroleum Exchange. The October natural gas contract also inched up 0.5¢ to the equivalent of $2.64/Mcf on the IPE.

The Organization of Petroleum Exporting Countries' basket of seven benchmark crudes was up 65¢ to $26.87/bbl Thursday.


More in General Interest