Market watch: Energy futures prices jump in fear of future tight markets

By the OGJ Online Staff

HOUSTON, July 9 -- International energy futures jumped Friday with a warning by the US Energy Information Agency of possibly tighter global stocks later this year.

The statistical and analytical arm of the US Department of Energy said in its monthly report that the US industrial sector's electricity consumption declined 4% to 82 billion kw-hr in February, compared to the same period a year ago, reflecting the slowdown in the US economy (OGJ Online, July 6, 2000).

EIA officials also warned that disruption of Iraq's oil exports would result in tighter supplies, even with slower than expected demand.

Keen for any bullish news, international markets reacted immediately by bidding prices up.

The August contract for benchmark US light, sweet crudes zoomed up $1.19 to $28.21/bbl Friday on the New York Mercantile Exchange, while the September contract jumped by $1.04 to $27.69/bbl. However, both contracts later retreated in after-hours electronic trading to $28/bbl and $27.54/bbl, respectively.

Unleaded gasoline for August delivery shot up 2.77¢ to 75.67¢/gal on the NYMEX, and home heating oil for the same month climbed 1.39¢ to 73.78¢/gal.

The August natural gas contract also added 8.2¢ to $3.22/Mcf on the NYMEX. Robert Morris at Salomon Smith Barney Inc. today predicted that the American Gas Association later this week would report injections of 110-120 bcf of natural gas into US underground storage during the week ended Friday. That would reflect reduced demand for electricity for office buildings and factories over the Independence Day holiday, he said.

It would increase the gas storage surplus by 12%, or 200 bcf, over the same period a year ago, Morris said. He reported that last week's US temperatures, as measured by cooling degree days, generally were 6.4% cooler than during the same period a year ago and 8.6% cooler than the 10-year average.

In London, North Sea Brent crude futures also rose sharply in a mix of technical strength and delayed impact of Iraq's voluntary embargo of oil exports on the International Petroleum Exchange. The August Brent crude contract settled at $26.81/bbl Friday, up 97¢ for the day after trading in a range of $25.81-$26.90/bbl.

However, brokers warned that those gains might be short-lived if the American Petroleum Institute reports Tuesday an increase in US petroleum inventories and imports for the previous week.

The August natural gas contract inched up 1¢ to the equivalent of $2.53/Mcf Friday on the IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven crudes increased 78¢ to $25/bbl, the center of the group's targeted price range, Friday.

For the full week, however, the average price for the OPEC basket dropped to $24.27/bbl, down 67¢ from the previous week.

So far this year, the price that OPEC has received for its oil has averaged $24.97/bbl, including an average $24.36/bbl during the first quarter and $25.63/bbl in the second quarter. That compares to an average $27.60/bbl for 2000 as a whole.