MARKET WATCH: Heat drives up energy prices

Energy prices continued to climb June 2 as warm weather increased demand for both natural gas and heating oil.

Sam Fletcher
Senior Writer

HOUSTON, June 3 -- Energy prices continued to climb June 2 as warm weather increased demand for both natural gas and heating oil.

"The market remains super-charged, coasting off a spring in which a weaker US dollar and the tides of global demand have swept prices to historic highs," said analysts at Pritchard Capital Partners LLC, New Orleans. Natural gas rose to the highest level since December 2005 amid speculation that competition for gas to put into storage will increase as the weather warms, they said. Above-normal temperatures are forecast from Texas to the Northeast through June 11.

Pritchard Capital analysts said, "Last week saw prices plummet—especially heating oil. But the next session didn't see much in the way of follow-through selling, so market watchers thought the bulls still had another stab at bolder prices."

Guy Caruso, head of the Energy Information Administration, told the Reuters Global Energy Summit in Houston that oil prices are likely to exceed $110/bbl through 2009 and beyond as demand continues to outstrip supplies. He also warned that the average retail price for gasoline in the US could peak at $4.10/gal later this month with crude prices of $120-125/bbl. In its next monthly forecast, he said, EIA will reduce its estimate of US demand for crude by 10,000 b/d as a result of high prices.

At that same meeting, ConocoPhillips Executive Vice-President James Gallogly said demand destruction should reduce pump prices for gasoline this summer.

Analysts in the Houston office of Raymond James & Associates Inc. said, "In a move that may slow crude global demand growth, the Malaysian government announced that the country will end fuel price controls due to the rising cost of subsidies. Other Asian nations that may follow suit include India, Indonesia, Taiwan, Sri Lanka, and Pakistan."

In the meantime, Enterprise Products Partners LP denied energy market rumors that the Independence Hub natural gas production platform in the Gulf of Mexico had restarted and was moving gas. The deepest production platform ever installed in the gulf and the largest offshore natural gas processing facility, the Independence Hub was expected to restart in mid-May after shutting down in early April due to a leak in the associated Independence Trail pipeline. Enterprise Products officials are now estimating a restart sometime in the first half of June.

In other news, two of Mexico's main Gulf Coast oil export ports remained closed June 2 in the wake of Tropical Storm Arthur that hit the Mexican coast over the weekend. The port at Dos Bocas and the offshore terminal at Cayo Arcas have been closed since June 1, but the port at Pajaritos remained open.

Motiva Enterprises said its 275,000 b/d refinery in Port Arthur, Tex., lost power the morning of June 2. Power was restored later that day, and the plant should back to full operation in a couple of days, officials said.

Valero Energy Corp. restarted a 55,000 b/d fluid catalytic cracker at its 160,000 b/d refinery in Paulsboro, NJ, and will soon be back at full production after shutting down May 27 to repair a leak in an expansion joint. Murphy Oil Corp. restarted its 35,000 b/d refinery in Superior, Wis., after a planned turnaround and will likely reach full rates later this week. Other sources reported Chevron Corp. was restarting a crude unit at its 260,000 b/d refinery in El Segundo, Calif.

Energy prices
The July contract for benchmark US light, sweet crudes increased 41¢ to $127.76/bbl June 2 on the New York Mercantile Exchange. The August contract gained 55¢ to $128.05/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 40¢ to $127.76/bbl. Heating oil for July delivery climbed 5.53¢ to $3.72/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) was up 4.25¢ to $3.39/gal.

The July natural gas contract escalated 26.6¢ to $11.97/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 42¢ to $11.90/MMbtu.

In London, the July IPE contract for North Sea Brent gained 24¢ to $128.02/bbl. The June contract for gas oil regained $5.25 to $1,193/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 benchmark crudes increased 42¢ to $122.10/bbl on June 2.

Contact Sam Fletcher at samf@ogjonline.com.

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