By OGJ editors
HOUSTON, June 4 -- Energy futures prices weakened in New York trading Monday, with the market unfazed by new indications from ministers of the Organization of Petroleum Exporting Countries that they have no plans to increase the group's production quota at a special meeting scheduled June 26 in Vienna.
OPEC's determination to hold the line on production, coupled with Middle East tensions and continued concerns about Iraq, "should continue to keep holders of short [oil futures] positions on edge. This sounds like an environment for maintaining [West Texas Intermediate] in the $24-30 price range in the second half," said Stephen A. Smith, founder of Stephen Smith Energy Associates, Natchez, Miss., in a recent report.
The July contract for benchmark US sweet, light crudes dropped 23¢ to $25.08/bbl Monday on the New York Mercantile Exchange. The August contract lost 13¢ to $25.26/bbl. However, both rebounded in after-hours electronic trading to $25.20/bbl and $25.35/bbl, respectively.
Heating oil for July delivery declined 0.61¢ to 63.5¢/gal on NYMEX. Unleaded gasoline for the same month dipped 0.21¢ to 74.64¢/bbl. The July natural gas contact slipped 2.5¢ to $3.25/Mcf.
"With current gas in [US] storage about 300-400 bcf over season norms, history would have suggested that current Henry Hub gas prices might lie in the $2-2.50 range. That this is not the case should remind us that the slope of the gas inventory curve is often more important than the level," said Smith, who was an equity research analyst for 15 years with Dain Rauscher Wessels and with Bear Stearns financial institutes.
"The fact that the gas surplus has been cut in half since late February is the dominant driver of current gas prices," he said. "A colder-than-normal spring and a small upturn in the economy cannot begin to explain this change. That leaves supply."
Several industry surveys and the US Department of Energy indicate that first quarter US gas production may have dropped 2-5% from year-ago levels, "which would be a staggering aftermath to the 2000-01 gas drilling boom," said Smith. "If a decline of midrange or better is confirmed, gas prices could be headed back to demand destruction territory, the $4-plus levels of 2000-01."
The average price for OPEC's basket of seven crudes lost 8¢ to $23.37/bbl Monday.
The International Petroleum Exchange in London was closed for a public holiday.