Market watch, Nov. 28

Energy future markets softened Monday because of profit taking and above-normal temperatures in the key US Northeast and Midwest markets. Some analysts said the decline might have been sharper if not for the threat of a strike among oilfield workers in Nigeria and continued wrangling between Iraq and United Nations officials.


Energy future markets softened Monday because of profit taking and above-normal temperatures in the key US Northeast and Midwest markets, analysts said.

The January contract for benchmark US light, sweet crudes dipped 2� to $35.38/bbl on the New York Mercantile Exchange, while the February position lost 11� to $34.29/bbl. Both contracts continued to slide in after-hours electronic trading, down to $35.28/bbl and $34.19/bbl respectively.

Some traders said the decline might have been sharper if not for the threat of a strike among oilfield workers in Nigeria and continued wrangling between Iraq and United Nations officials.

However, another cold snap is predicted to sweep across the Northeast by the end of this week. A maxim among NYMEX observers holds that the difference between a bull or bear winter market often depends on whether traders wear their overcoats to work that morning.

The December home heating oil contract was down 0.92� to $1.0852/gal on the NYMEX Monday, while unleaded gasoline for the same month pulled back 1.42� to 90.59�/gal. Natural gas for December delivery plunged 20.9� to $6.37/Mcf.

The Thanksgiving holiday reduced heating demand among US commercial and industrial end-users. But based on the number of heating-degree days weighted by gas home heating customers, temperatures across the US last week were 78.9% colder than the same period in 1999 and 37.8% colder than the 10-year average, said Robert Morris, energy analyst at Salomon Smith Barney Inc.

Morris predicts the American Gas Association this week will report withdrawal of 100-110 bcf of natural gas from US underground storage during the previous week, compared with injections of 5 bcf in the same period last year and 8 bcf in 1998.

"Consequently, the year-over-year storage deficit should widen to over 450 bcf, or more than 15% below last year, as of (last Friday)," he said.

In London, North Sea Brent crude futures were down slightly in narrow, range-bound trading on the International Petroleum Exchange. Prices in that market briefly drifted below $33/bbl Monday, but staged a small rally with news that the UN rejected Iraq's proposal that it be paid in euros, rather than dollars, for its oil.

The January contract for North Sea Brent closed at $33.06/bbl, down 6� for the day.

Also on the IPE, natural gas fell 0.02� to the equivalent of $4.30/Mcf.

Analysts said there's a small chance that Iraq might disrupt its oil exports under the UN oil-for-food program. However, market reaction to that threat remains fairly muted.

Saudi Arabian Minister of Petroleum and Mineral Resources Ali I. Naimi said Monday that his country and other members of the Organization of Petroleum Exporting Countries are prepared to offset any disruptions in world oil supplies caused by natural disasters or political procedures.

But continuation of oil prices above OPEC's target band of $22-$28/bbl won't necessarily trigger another production hike, he said.

"We have increased production and enforced the price band because we believed there was a need to raise output � But when we found out that raising production has no more effect on prices, we realized that the problem is not a shortage of supply," he said.

Like other OPEC officials, Naimi claims there is sufficient�and probably surplus�oil in the market to meet current demand.

The average price for OPEC's basket of seven crudes increased 9� to $31.61/bbl Monday.

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