MARKET WATCHEnergy futures prices tumble as skeptics doubt OPEC's ability to cut oil supplies

Energy futures prices fell Monday as traders reacted to analysts' speculation that the Organization of Petroleum Exporting Countries may not reduce production enough for an expected drop off in world demand for oil in the second quarter of this year.

April 29, 2003

2 min read

By OGJ editors

HOUSTON, Apr. 29 -- Energy futures prices fell Monday as traders reacted to analysts' speculation that the Organization of Petroleum Exporting Countries may not reduce production enough for an expected drop off in world demand for oil in the second quarter of this year.

Some analysts said they see signs that demand for gasoline this summer may not be as high as normal. Some said that OPEC's proposal to cut oil output by 2 million b/d from current levels, while at same time increasing official production quotas by 900,000 b/d, won't stop oil prices from falling further to $23/bbl or perhaps even lower.

Market prices
The June contract for benchmark US sweet, light crudes dropped 77¢ to $25.49/bbl Monday on the New York Mercantile Exchange, while the July position retreated 70¢ to $25.40/bbl. Unleaded gasoline for May delivery plummeted 4.12¢ to 84.24¢/gal. Heating oil for the same month fell 3.46¢ to 73.14/gal.

The May natural gas contract plunged 35.4¢ to $5.12/Mcf Monday on NYMEX. That market was "undermined by weaker crude oil prices and a soft physical market as mild weather blanketed much of the eastern half of the nation," analysts said Tuesday at Enerfax Daily.

"The market opened down and spent all day slipping lower, falling sharply near expiration," analysts said. "Last week's bearish 61 bcf build in (US gas) storage levels set the tone for the sell-down over the last 3 sessions."

They said, "Replenishing storage levels that are well below historical averages will be crucial once summer air conditioning demand begins, making (natural gas) pricing even more weather dependent than usual. After the meltdown yesterday, June appears oversold, with its best chance upward being a short covering rally. But look for some more downside as prices approach levels of 2-3 weeks ago."

In London, prices for North Sea Brent oil touched a 5-month low Monday on the International Petroleum Exchange. The June Brent contract closed at $23.50/bbl Monday, down 59¢ for the day after trading in a tight range of $23.30-23.93/bbl.

The May natural gas contract inched up 0.6¢ to the equivalent of $2.59/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes lost 76¢ to $23.64/bbl Monday.