MARKET WATCHEnergy futures prices retreat with profit taking
Sam Fletcher
Senior Writer
HOUSTON, May 16 -- Energy futures prices retreated in profit taking Thursday as traders cashed in on the earlier jump in energy markets in connection with terrorist attacks in Saudi Arabia.
Trading was mostly technical as participants maneuvered to lock in profits from the earlier rally, analysts said.
The June contract for benchmark US light, sweet crudes slipped by 43¢ to $28.74/bbl Thursday on the New York Mercantile Exchange, while the July position dipped by 37¢ to $28.41/bbl. Heating oil for June delivery lost 1.37¢ to 75.04¢/gal. Unleaded gasoline for the same month was down 0.64¢ to 86.73¢/gal.
Analysts at UBS Warburg LLC, New York, said Friday that "a reasonable price expectation" for benchmark US oil is an average $27.75/bbl for this year, $23/bbl 2004, and $21 bbl 2005. With West Texas Intermediate crude currently priced at $28-29/bbl, they said, that would entail an average price of $25/bbl in the second half of this year, falling to $21/bbl by 2005. "While not looking for a price collapse, erosion of oil price is expected," they said.
Natural gas
The June natural gas contract dropped 18.3¢ to $6.13/Mcf on NYMEX, following a "slightly bearish" report on US gas storage Thursday. The US Energy Information Administration said 72 bcf of natural gas was injected into US underground storage during the week ended May 9. That compared with injections of 87 bcf, revised up from 80 bcf, the previous week and 62 bcf during the same period a year ago.
US gas storage now stands at 900 bcf, down 807 bcf from a year ago and 542 bcf below the 5-year average.
"The added storage levels indicate buying for storage might be moving into high-gear and may mean an even larger build next week," analysts at Enerfax Daily reported Friday.
UBS Warburg analysts expect weather-driven demand for natural gas to continue to grow "over the near term," following persistent hot conditions in Texas and the Southeast US this week.
Robert S. Morris at Banc of America Securities, New York, said lower stream flow levels in the Northwest US, as a result of reduced snowfall this past winter, could generate incremental demand for 500 MMcfd of natural gas this summer. That's down from previous predictions of as much as 1 bcfd of incremental demand before precipitation levels in the Pacific Northwest "increased dramatically" in March and April.
However, Morris said, the impact of higher-than-expected hydro levels in the Northwest this summer may be largely offset by less nuclear generation capacity, due to recent nuclear plant outages.
Other prices
In London, the June contract for North Sea Brent oil dipped by 2¢ to settle at $26.73/bbl, after trading at $26.53-27.01/bbl Thursday on the International Petroleum Exchange. There was insufficient bullish news or data to support prices above $27/bbl, said brokers. However, if the Organization of Petroleum Exporting Countries agrees to another production cut in June, they said, prices could exceed $27/bbl.
The June natural gas contract gained 0.99¢ to the equivalent of $2.71/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes inched up 8¢ to $26.21/bbl Thursday.
Contact Sam Fletcher at [email protected]