Market watch, Jan. 3

Energy futures were mixed Tuesday during the first day of international trading for the new year. Oil prices rose with increasing signs of a possible production cut by the Organization of Petroleum Exporting Countries, but US heating oil fell with predictions of warmer weather, analysts said.


Energy futures were mixed Tuesday during the first day of international trading for the new year. Oil prices rose with increasing signs of a possible production cut by the Organization of Petroleum Exporting Countries at its Jan. 17 meeting, but US heating oil fell with predictions of warmer weather, analysts said.

The February contract for benchmark US sweet, light crudes advanced 41� to $27.21/bbl on the New York Mercantile Exchange, while the March contract gained 54� to $26.52/bbl.

Home heating oil for February delivery dropped 2.51� to 86.58�/gal on the NYMEX, while unleaded gasoline for the same month inched up 0.47� to 79.5�/gal.

The American Petroleum Institute was scheduled to issue its weekly petroleum inventory report after the Wednesday close of the NYMEX, a day later than normal because of the New Year holiday Monday.

Meanwhile, the February contract for natural gas also jumped $1.41 Tuesday to $8.36/Mcf.

Robert Morris, senior energy analyst for Salomon Smith Barney Inc., early Wednesday raised his composite US spot natural gas forecast for 2001 to $5/Mcf from the previous $4.25/Mcf that was based on a �worst case� scenario of another record warm winter.

However, he said, the weighted temperatures in November-December were roughly 20% lower than the 10-year US average, while January temperatures are expected to be normal to slightly above normal. Still, Morris said, �Extensive snow cover in the central to northeastern sections of the country should limit any major warming in the eastern half of the US. Any trend to much warmer than normal temperatures during the last 3 months of this winter is unlikely, given the absence of La Ni�a conditions which limited the penetration of arctic air masses into the US last winter.�

Therefore, the revised forecast of $5/Mcf is still conservative, Morris said. It�s based on expectations that the US economy slows to a 1.25%/year gross domestic product growth rate, down from the Wall Street consensus of 2.5%, with more than a 5% increase in domestic gas production. It also incorporates an average price of no more than $24/bbl for benchmark US crudes during the year to limit fuel switching and the stripping of petroleum liquids from natural gas, he said.

But a recent report by the Independent Petroleum Association of America projects that US gas production will increase by only 1.5% this year.

If that happens, Morris said, the industry can put only 2.6 tcf of gas in storage this summer, down from the 2.8 tcf it managed last summer and short of the 3 tcf needed before next November. The result, he said, would be �a potentially more dire natural gas price landscape than this season.�

In London, the February contract for North Sea Brent oil closed at $24.30/bbl, up 43� for the day after trading as high as $24.90/bbl Tuesday on the International Petroleum Exchange. The February natural gas contract dropped 27� to the equivalent of $3.84/Mcf on the IPE.

Brokers said Tuesday they doubted if the Brent price would get much closer to the $25/bbl threshold in that market. Cold weather in the US and parts of Europe had pushed up heating oil demand over the last 2 weeks, but market fundamentals are looking weaker with an expected warming trend, they said.

However, the IPE apparently was rallying early Wednesday on reports of a consensus among OPEC members on the need to cut production at their January meeting, although there is yet no agreement of the size of that cut. The February Brent contract was at $24.62/bbl in early trading on the IPE Wednesday, up 32� from its previous close.

In overnight trading on the Singapore Exchange, the February contract for Brent crude gained 43� to $24.30/bbl, with the March contract up 32� to $24.22/bbl.

The average price for OPEC�s basket of seven crudes gained 65� Tuesday to $24.40/bbl.

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