MARKET WATCHColder weather drives up energy prices

The first cold weather of this winter blew into the Northeast US, pushing up prices for heating oil Tuesday in the world's biggest market for that commodity and pulling up other energy prices along with it.

Dec. 15, 2004

3 min read

Sam Fletcher
Senior Writer

HOUSTON, Dec. 15 -- The first cold weather of this winter blew into the Northeast US, pushing up prices for heating oil Tuesday in the world's biggest market for that commodity and pulling up other energy prices along with it.

Indications that colder-than-normal temperatures might linger longer than was first expected helped establish heating oil as a market leader, said analysts. But some traders awaited the release Wednesday of weekly inventories of US crude and petroleum products to set the tone of trading for the rest of the week.

The US Energy Information Administration reported early Wednesday that commercial crude inventories dipped by 100,000 bbl to 293.8 million bbl during the week ended Dec. 10, while distillate fuels remained flat at 119.3 million bbl, just below the lower end of the average range for this time of year. However, US gasoline stocks increased by 1.5 million bbl to 209.6 million bbl.

Crude input into US refineries decreased by 52,000 b/d to 15.7 million b/d in the week ended Dec. 10. Production of heating oil remained relatively flat while production of diesel fuel decreased slightly. Gasoline production, however, rose to average nearly 9 million b/d during the same period.

Energy prices
Heating oil for January delivery jumped by 4.75¢ to $1.30/gal on the New York Mercantile Exchange, gasoline for the same month was up by 1.28¢ to $1.11/gal. The January contract for benchmark US light, sweet crudes increased by 81¢ to $41.82/bbl, and the February position advanced by 62¢ to $42.45/bbl. On the US spot market, West Texas Intermediate gained 81¢ to $41.83/bbl.

The January natural gas contract gained 16.7¢ to $7.33/MMbtu, "driven by a firm cash [spot gas] market and a surge in heating demand," said analysts Wednesday at Enerfax Daily. "Weather models, particularly the Canadian model, are starting to line up showing a ridging pattern that could deliver frigid Canadian air into the eastern half of the US for an extended period of time," they said. "The forecast for the rest of December looks cold, but as soon as it deviates from that outlook, expect prices to pull back sharply."

In London, the January contract for North Sea Brent crude escalated by $1.41 to $39.25/bbl Tuesday on the International Petroleum Exchange.

The average price for the Organization of Petroleum Exporting Countries basket of seven benchmark crudes gained 73¢ to $34.72/bbl Tuesday.

After the cartel voted to rein in its excess production at its Cairo meeting last week, "it now appears that OPEC intends to defend WTI prices in the $40/bbl range, said analysts in the Houston office of Raymond James & Associates Inc. They cited three reasons for OPEC's action:
-- There has been virtually no evidence of oil demand destruction at $40-pluys oil.
-- Dramatically higher transportations costs (i.e., tanker rates) over the past several months mean lower realized oil prices for OPEC producers (Saudi in particular)
-- Continued declines in the US dollar vis-à-vis the euro, has further weakened OPEC's purchasing power.

Contact Sam Fletcher at [email protected]