MARKET WATCHCold weather pushes natural gas futures price above $5/Mcf

Sam Fletcher
Senior Writer

HOUSTON, Dec. 2 -- Futures prices for natural gas again jumped above $5/Mcf Monday on the New York Mercantile Exchange, triggered by cold weather in the Northeast US and stoked by technical buying and short covering by traders holding open sales contracts in that market.

However, oil prices fell in New York and London markets, with traders in a bearish mood ahead of the extraordinary meeting Thursday of ministers of the Organization of Petroleum Exporting Countries in Vienna.

OPEC members differ
Chakib Khelil, minister of energy and mines for Algeria, was quoted in the Spanish economic newspaper Cinco Dias as favoring a reduction of OPEC production in the upcoming meeting. A production cut is necessary, Khelil said, because of the expected reduction of demand by 2 million b/d during the second quarter of 2004. If world oil production increased during that same period, world oil prices could plummet to $10-20/bbl, he said.

Khelil said OPEC ministers Thursday will ask non-OPEC producers—including Russia, Mexico, Angola, and Norway—to help maintain oil price stability through next year.

Sheikh Ahmad Fahad Al-Ahmad Al-Sabah, Kuwait's minister of energy, said he fully supports maintaining OPEC's current combined production quota of 24.5 million b/d. Speaking to the Kuwait news agency prior to his departure to London and on to Vienna, Al-Sabah said he would not request either an increase or a decrease of production.

He also said that Kuwait and Iran agreed on a "mechanism" to settle their differences over the offshore Dorra natural gas field that straddles the maritime boundary between the two countries (OGJ Online, Nov. 5, 2003).

Iran has been involved in a long-running dispute with Kuwait and Saudi Arabia over demarcation of the boundary through the northern Gulf continental shelf. In July 2000, Kuwait and Saudi Arabia concluded an agreement demarcating their maritime border (OGJ Online, July 21, 2000). Iran has yet to settle its border dispute with either Saudi Arabia or Kuwait.

Obaid bin Saif Al-Nasseri, UAE minister of petroleum and mineral resources, also said earlier there is no need for OPEC to change its current production quota. Still, he said, OPEC ministers may vote this week for another extraordinary meeting in January or February to review market conditions (OGJ Online, Dec. 1, 2003).

Meanwhile, the managing director of the National Iranian Oil Co. denied reports that Iran is over-producing its current quota by 300,000 b/d. However, he confirmed recent reports that Iran has revised the estimate of its oil and condensate reserves up by 36% to 130.8 billion bbl. Iran may use that increase to push for an increase in its production quota.

Libya's also wants a larger oil production quota within OPEC, said Libyan Prime Minister Shokri Ghanem, who earlier indicated that subject would be discussed at the upcoming OPEC meeting (OGJ Online, Nov. 4, 2003).

No change expected
Most analysts and traders apparently expect no change in OPEC's production quota at Thursday's meeting.

"There is at least an 80% chance that OPEC will decide to leave production quotas unchanged at 24.5 million b/d," said Tyler Dann, an analyst in the Houston office of Banc of America Securities LLC, New York. "OPEC's inclination to look forward to a large forecasted inventory build in the second quarter of 2004 suggest that [if there] were to be a change, it would be a quota reduction rather than a quota increase."

In a report issued Monday, Dann said, "OPEC will probably need to cut production incrementally in 2004. Strong expected production growth (from Iraq, Russia, and West Africa in particular) will likely only partially be offset by 1.5%-plus global demand growth (fueled largely by China), thereby placing the onus on OPEC's largest producers (Saudi Arabia, Kuwait, and the UAE in particular) to cut volumes further, by 700,000-1 million b/d in the first half of 2004."

Energy prices
The January contract for natural gas jumped by 35.8¢, or 7.1%, to $5.28/Mcf Monday on NYMEX. "Cold weather was the initial catalyst for the buying, but most of the action was technically driven," said analysts Tuesday at Enerfax Daily. "It hit a lot of buy stops [standing orders to buy at previously selected price levels] above $5[/Mcf] on the open and then again in the $5.20s, but a lagging cash market and a milder 6-10-day outlook tempered the rally."

The January contract for benchmark US light, sweet crudes lost 46¢ to $29.95/bbl Monday, while the February contract was down by 42¢ to $29.80/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was at $29.98/bbl Monday, up from $29.68/bbl on Nov. 25.

Unleaded gasoline for January delivery fell by 1.27¢ to 82.17¢/gal Monday on NYMEX. Heating oil for the same month dropped 0.87¢ to 83.4¢/gal.

In London, the January contract for North Sea Brent oil declined by 20¢ to $28.25/bbl Monday on the International Petroleum Exchange. Gas oil for December delivery lost $4 to $247/tonne. The January natural gas contract lost 14¢ to the equivalent of $5.79/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes dropped 53¢ to $27.92/bbl Monday.

Contact Sam Fletcher at [email protected]