MARKET WATCHEnergy futures prices fall in directionless markets
Sam Fletcher
Senior Writer
HOUSTON, Oct. 28 -- Energy futures prices generally fell Monday as traders tried to decide in which direction markets may move next.
Growing US inventories of oil and the eventual prospect of increased production and export of Iraqi crude indicate that energy prices should continue to drift downward, said some analysts. But other more-bullish sources are speculating that the Organization of Petroleum Exporting Countries will again reduce production quotas to prevent prices from falling too low in the off-season second quarter of 2004
The latest rollback of OPEC's production quota by 900,000 b/d to 24.5 million b/d becomes effective this Saturday. However, that cut apparently was factored into current market prices long before the effective date.
IPE natural gas price surges
Arguably the most interesting development in futures markets Monday was that the price of natural gas for November delivery on the International Petroleum Exchange in London jumped ahead of the November gas price on the New York Mercantile Exchange by a significant margin for the first time since early March 2002, when natural gas contracts were trading well below $3/Mcf in both markets.
The November natural gas contract surged forward by 40.4¢ to the equivalent of $5.19/Mcf Monday on IPE, while NYMEX gas for November plunged by 27.4¢ to $4.51/Mcf.
Near-month gas futures prices on NYMEX almost always have outstripped comparable IPE gas futures prices, frequently by a significant amount, except for a roughly 6-month period during the winter of 2001-2002 when the US natural gas market was in the doldrums. The strengthening of near-month natural gas futures prices on IPE in recent weeks may signal a maturing of that market.
Meanwhile, the NYMEX natural gas futures market was "undermined by a crumbling cash (spot gas) market amid fairly mild weather forecasts this week, particularly in the Northeast market," said analysts Tuesday at Enerfax Daily. "November, the official beginning of the heating season, looks set for a mild start. Though some forecasters are still looking for a normal or slightly below-normal winter, private forecasters are predicting an above-average November," they said.
Natural gas storage
Robert S. Morris, Banc of America Securities LLC, New York, said Tuesday he expects the US Energy Information Administration to report Thursday that 57-67 bcf of natural gas were injected into US underground storage during the week ended Oct. 24, raising total US gas storage to 3.08 tcf.
That scheduled report also will include a change in EIA's survey methodology, increasing to 55 the number of storage companies surveyed, from the original 44. The amount of gas estimated to be in storage is expected to increase, as a result.
The expected upward revision of EIA's weekly gas storage figures, coupled with the expiration Wednesday of the November natural gas contract on NYMEX, should generate some volatility in natural gas prices this week, said Ohio energy economist James L. Williams, president of WTRG Economics Inc. (OGJ Online, Oct. 27, 2003).
However, the change in EIA's survey methodology should reduce price volatility in the long run, he said.
Energy prices
The December contract for benchmark US light, sweet crudes fell by 24¢ to $29.92/bbl Monday on NYMEX, while the January contract lost 17¢ to $29.70/bbl. On the US spot market, West Texas Intermediate oil at Cushing, Okla., slipped by 6¢ to $30.02/bbl.
Heating oil for November delivery dropped 1.25¢ to 80.86¢/gal on NYMEX. Unleaded gasoline for the same month was down by 0.87¢ to 82.84¢/gal.
On IPE, the December contract for North Sea Brent oil lost 19¢ to $28.39/bbl Monday. The November gas oil contract declined by $4.73 to $252.75/tonne.
The average price for OPEC's basket of seven benchmark crudes lost 11¢ to $28.12/bbl Monday.
Contact Sam Fletcher at [email protected]