Market watch: Colder US weather helps boost energy futures prices

With snow storms in the US snarling travel and disrupting electrical power from Arkansas to Connecticut, energy futures prices increased across the board Thursday on the New York Mercantile Exchange.

Dec 6th, 2002

Sam Fletcher
OGJ Senior Writer
HOUSTON, Dec. 6 -- With snow storms in the US snarling travel and disrupting electrical power from Arkansas to Connecticut, energy futures prices increased across the board Thursday on the New York Mercantile Exchange.

Meanwhile, Venezuela declared a force majeure for petroleum products because it expects oil shipments to be delayed, Jorge Kamkoff, first vice-president of the state oil company Petroleos de Venezuela SA reported Thursday. Force majeure is a clause in contracts that allows a buyer or seller to repudiate contract terms because of a special "act of God" or "due to circumstances beyond our control."

Other sources reported 23 tankers were anchored off oil terminals in Venezuela unable to load cargoes because top PDVSA managers are adhering to a 4-day-old strike against President Hugo Chavez.

The January and February contracts for benchmark US light, sweet crudes each gained 58¢ to $27.29/bbl and $27.17/bbl, respectively. Unleaded gasoline for January delivery jumped by 2.34¢ to 75.27¢/gal. Heating oil for the same month was up 1.08¢ to 75.62¢/gal.

The January natural gas contract rose 10.8¢ to $4.41/Mcf on NYMEX. "The market opened higher in anticipation of huge storage withdrawal and drifted sideways for most of the morning before cold weather forecasts through the weekend and into next week brought locals to their senses to buy, or at least cover shorts," analysts at Enerfax Daily reported Friday. "The (Energy Information Administration) reported a 91 bcf withdrawal from storage, leaving 2.956 tcf available, almost 300 bcf less than a year ago. Higher crude oil futures also helped support (Thursday's) rally."

The analysts noted, "There are so many shorts out there that expected the market to get pounded; if the cold doesn't break real soon, you could another jump to the upside when they all try to cover at once."

US temperatures last week "were roughly 50% colder than last year, 17% colder than the 10-year average, and about 30% colder than the prior week," Robert Morris, market analyst with Salomon Smith Barney Inc. in New York, reported Thursday. He noted that meteorologists employed by Salomon Smith Barney are predicting temperatures should remain lower than normal next week in the central and eastern US, but above normal in the west, before returning to normal levels across the country the following week.

"Although natural gas prices have risen to near parity with distillate fuel oil prices in many parts of the eastern US, our proprietary models indicate that no more than about 0.5 bcfd of natural gas demand has so far been 'lost' due to fuel switching," said Morris. Further increases in natural gas prices could trigger a switchover affecting as much as 4 bcfd of projected gas demand, but not until sometime in 2003, he said.

Meanwhile, moderation of current low winter temperatures "could not only reduce basis natural gas transportation costs but might also keep some consumers from pulling the trigger on switching to fuel oil if they believe natural gas prices might also moderate near term or are concerned that oil prices could spike if the US engages Iraq in a military conflict," Morris said.

On Thursday, Salomon Smith Barney raised its 2003 spot price forecast for West Texas Intermediate crude to $22.75/bbl from $20/bbl previously, and its composite post natural gas price for the same period to $4.10/Mcf from $3.50/Mcf previously. "Our higher oil price outlook not only raises the bar as to where natural gas demand will be lost due to fuel switching, but also forestall the full extent of potential fuel switching, absent an even higher natural gas price than we are now projecting," said Morris.

In London, the January contract for North Sea Brent oil gained 62¢ to $25.80/bbl on the International Petroleum Exchange. But the January natural gas contract lost 4.5¢ to the equivalent of $4.33/Mcf.

The Organization of Petroleum Exporting Countries' news agency office in Vienna was closed Friday for a public holiday, so there was no report on the average price for OPEC's basket of seven benchmark crudes.

Contact Sam Fletcher at samf@ogjonline.com

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