MARKET WATCHCrude prices continue falling as speculative funds take profits
By OGJ editors
HOUSTON, May 28 -- Energy prices continued to fall Thursday amid signs that members of the Organization of Petroleum Exporting Countries may agree to increase both their production quota and their target-price band at their scheduled meeting June 3 in Beirut.
A proposal to lift the current 23.5 million b/d production quota to more than 25 million b/d while raising the long-term target price band of $22-28/bbl by as much as $8/bbl is seen as a possible compromise between differing members. Saudi Arabia has said it can easily raise its production by 2 million b/d to 10 million b/d. But other members such as Venezuela want to demand higher prices from the market.
Other than Saudi Arabia, few OPEC have much additional production capacity that can be quickly activated, however. A former energy minister of Indonesia recently suggested that country should drop out of the cartel if it remains a net importer of crude by the end of this year. Indonesia's crude production was reported by Down Jones wire services to be 980,000 b/d in April, well below its current quota of 1.2 million b/d.
Speculation over OPEC's possible actions at next week's meeting encouraged the sale Thursday of energy futures positions by major commodity funds intent on taking profits ahead of the extended weekend holiday. The New York Mercantile Exchange had a shortened session Friday and will be closed Monday for Memorial Day. In London, the International Petroleum Exchange also will be closed Monday, for Spring Bank Holiday.
Lift price forecasts
Meanwhile, Banc of America Securities LLC, New York, said Thursday it was raising its price forecasts for West Texas Intermediate to an average $35/bbl in 2004 and $30/bbl in 2005, up from previous estimates of $32.50/bbl and $27/bbl, respectively.
That's based on expectations that "a significant 'geopolitical premium' is likely to persist for the foreseeable future," said Banc of America analyst Robert S. Morris. That premium is currently figured at "at least" $6/bbl, he said.
Other factors include "OPEC's continued objective of maximizing revenues," and the "apparently low elasticity of oil demand, and in particular US gasoline demand, to date with spot WTI prices of up to $40/bbl," said Morris. "Importantly, it does not appear that record high crude oil prices have yet had any significant impact on global crude oil demand. In fact, while WTI spot crude oil prices have averaged north of $30/bbl since early 2003, the global economy has steadily improved and is projected to continue on an upward trend for at least the next few years."
Banc of America also increased its forecasts of composite spot natural gas prices to the equivalent of $5.50/Mcf in 2004 and $5/Mcf in 2005, up from previous picks of $5.10/Mcf and $4.50/Mcf respectively. "Apart from a warmer-than-normal summer or unanticipated supply disruption such as a hurricane, natural gas prices should continue to be largely dictated by oil prices near term," Morris said.
Energy prices
The July contract for benchmark US light, sweet crudes fell by $1.26 to $39.44/bbl Thursday on NYMEX, while the August position was down by $1.10 to $39.28/bbl. On the US spot market, WTI lost $1.30 to $39.40/bbl.
Gasoline for July delivery fell by 3.4¢ to $1.3852/gal Thursday on NYMEX. Heating oil for the same month dropped 3.18¢ to 98.78¢/gal. The July natural gas contract plunged by 15.9¢ to $6.57/Mcf on NYMEX despite a "neutral" weekly report on natural gas storage Thursday, "pressured by moderate weather forecasts and a sharp drop in crude oil prices," said analysts Friday at Enerfax Daily.
In London, the July North Sea Brent contract was down by 83¢ to $36.25/bbl on IPE. Gas oil for June delivery fell by $11.25 to $314.50/tonne, but the June natural gas contract inched up by 1.7¢ to the equivalent of $3.96/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes lost 97¢ to $36.02/bbl on Thursday.