Sam Fletcher
Senior Writer
HOUSTON, Aug. 25 -- Futures prices for oil and petroleum products slipped lower Friday, with market fundamentals too weak to support the price jump in the previous trading session in response to a government report of a 9-month low in US gasoline inventories ahead of the approaching Labor Day weekend in the US and Canada.
Unleaded gasoline for delivery in September dipped by 0.68¢ to $1.09/gal Friday on the New York Mercantile Exchange, after escalating by 9.57¢ to $1.10/gal and pulling up other energy commodities' prices during the previous session.
The October contract for benchmark US light, sweet crudes slipped by 4¢ to $31.84/bbl Friday on NYMEX, while the November position was down by 1¢ to $31.60/bbl. Home heating oil for September delivery lost 0.3¢ to 83¢/gal.
However, the September natural gas contract inched up by 0.5¢ to $5.28/Mcf on NYMEX. Futures prices for the "front months" of September and October were "underpinned by firmer physical prices and some nervous short covering (purchases by traders holding an excess of open sales over open purchases) ahead of a developing storm system in the Caribbean," analysts said Monday at Enerfax Daily.
"While the market is overbought after five consecutive higher closes and due for a profit-taking pullback, shorts were nervous about all the tropical (storm) activity ahead of a weekend," they said.
Gas storage projections
Enerfax analysts noted that the US Energy Information Administration's Aug. 21 report of 78 bcf of gas injected into US underground storage during the week ended Aug. 15 "was in line with expectations." Still, they said, "Most traders viewed the number as bearish, noting it was still well above the normal injection rate for this time of year." The analysts projected that EIA this week will report an injection rate of 60-70 bcf for the week ended Aug. 22.
In a separate report Monday, Stephen A. Smith, founder and president of Stephen Smith Energy Associates, Natchez, Miss., forecast an injection rate of 60 bcf for the same period. However, he said, that would be "10 bcf less than our 'normal' seasonal build of 70 bcf" and "would imply that our 'seasonal storage deficit' (relative to 1994-98 norms) will be increased by 10 bcf, from a deficit of 161 bcf to a deficit of 171 bcf."
Smith said, "The largest impact of the Northeast power outage of Aug. 14 . . . was that nine nuclear reactors tripped offline, and nuclear units take time to get back to full power (OGJ Online, Aug. 19, 2003). The net effect was that nuclear generation for the week of Aug. 22 was 5.4% lower than (during) the week of Aug. 15. The full impact of this lost nuclear (power generation), had it all been replaced by gas, would have been 10 bcf. We estimate that gas captured about 35-40% of this total."
He expects the combination of increased demand for air conditioning because of hotter weather last week in parts of the US, combined with more demand for natural gas as fuel to offset the temporary loss of nuclear power generation, will have reduced injections of gas into storage last week, so that the gap between current and previous storage will have widened by 10 bcf. If that did occur, Smith said, "It would be the first week of deficit expansion since the May 9 storage report. We suspect that such news (from EIA in its next report this week) would initially drive gas prices higher."
Nonetheless, he said, "We remain bearish on the gas price outlook for the next 2-3 months."
In yet another Monday report, Robert S. Morris, Banc of America Securities LLC, New York, said, "We estimate that the lost nuclear generation last week should result in roughly 9 bcf of incremental gas demand, which should be reflected in this week's (EIA report of gas injections). However, this is likely to be partially offset, as natural gas demand was reduced somewhat in the aftermath of the blackout as several of the impacted chemical manufacturers, refineries, and automotive producers were slow to resume operations once the power was restored."
Other energy prices
In London, the October contract for North Sea Brent oil dipped by 1¢ to $29.70/bbl Friday on the International Petroleum Exchange. The September natural gas contract dropped 4¢ to the equivalent of $2.32/Mcf on IPE.
The average price of the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes increased by 44¢ to $29.17/bbl Friday.
For the whole week, the basket price averaged $28.29/bbl, down from an average of $28.78/bbl during the previous week. So far this year, OPEC's basket price has averaged $28.05/bbl, compared with an average price of $24.36/bbl during all of 2002.
For 15 of the last 16 trading days, OPEC's basket price has exceeded the group's target of $22-28/bbl.
As a result of higher oil prices, Saudi Arabia is expected to receive an additional $30 billion of income this year and is likely to record its second budget surplus in nearly 20 years, rather than an earlier projected deficit of $10.4 billion for 2003, analysts reported. "One study predicts the surplus to exceed $13 billion, the highest in more than 20 years," the OPEC news agency reported Monday.
IN another report Monday, that same news agency quoted Oman's Minister of Oil and Gas Mohammed Al Ramahi as saying OPEC's current strategy satisfies the interests of both oil producers and consumers. He said OPEC is capable of maintaining its targeted price range even after Iraq resumes oil production on a regular basis.
Meanwhile, United Nations Sec. Gen. Kofi Annan continues to push for increased security for UN operations in Iraq and for greater UN involvement in the pacification of that country.
Annan said most UN members probably favor broadening that organization's role in Iraq's political and economic reconstruction, as well as its security—"not just burden-sharing, but also sharing decisions and responsibility with the others" of the US-led coalition, he said.
Contact Sam Fletcher at [email protected]