Market watch: Oil futures prices decline despite hopeful indicators

ogj.pennnet.com Sam Fletcher Senior Writer

HOUSTON, Feb. 3 -- Energy futures prices were mixed Friday amid signs of increased oil production in Venezuela and possible postponement of military action against Iraq.

In a radio broadcast marking his fourth anniversary in office, Venezuelan President Hugo Chávez claimed Sunday that Venezuela is now producing 1.8 million b/d of oil and 1 bcfd of natural gas. He also announced that 5,000 managers and technicians have been fired from Petroleos de Venezuela SA (PDVSA), the national oil company, up from 3,000 previously.

Conflicting reports "There are conflicting reports as to actual production levels out of the country, but Venezuela still appears to be producing 1.7-2.2 million b/d below its capacity," said Tyler Dann, a Houston-based analyst with Banc of America Securities LLC, in a report issued last week. "Some industry observers have gone as far as to estimate that 400,000 b/d of (Venezuela's) production capacity has been eliminated," he added.

"Without a comprehensive resolution of the strike (preferably with Chávez out of power), refinery start ups and field rehabilitation work will likely be difficult to comprehensively execute," said Dann. "Future capacity rehabilitation (and) growth will likely be a function of western company involvement; our argument would be that, with Chávez still in power, this would be a tough sell to those companies."

Meanwhile, the Caracas-based online news service Petroleumworld.com, published on the internet, reported Monday that 5 million Venezuelans lined up Sunday to sign petitions to remove Chávez from office. Opposition leaders also said they were scaling back the 63-day general strike, with nonoil sectors of business returning to work Monday. They said they took that action in response to international requests and to demonstrate their willingness to negotiate a means of removing Chávez.

Energy prices The March contract for benchmark US light, sweet crudes lost 34¢ to $33.51/bbl Friday on the New York Mercantile Exchange, while the April position was down 22¢ to $32.74/bbl. The expiring February contract for heating oil plunged 2.17¢ to 95.88/gal. Unleaded gasoline for the same month dropped 1.13¢ to 97.56¢/gal.

However, the March natural gas contract inched up 2.2¢ to $5.61/Mcf on NYMEX "in a day of choppy trades and short covering ahead of the weekend," said analysts at Enerfax Daily.

"The market is still being driven by the weather and will probably remain somewhat volatile on conflicting mid-range forecasts (for colder weather through mid-February)," they said. "The concern is whether or not enough gas can be put in the ground over the summer. Inventories of natural gas storage have been drawn down substantially during the past month as frigid weather covered high-consumption areas in the Northeast. Last Thursday, the Energy Information Administration reported a 247 bcf withdrawal from storage—the third largest on record. The draw brought inventories down to 1.729 tcf, compared (with) a 5-year average of 1.919 tcf. However, a flat natural gas production profile and rising demand many predicting a $4.50(/Mcf) average price for 2003."

In London, the March contract for North Sea Brent oil lost 11¢ to $31.10/bbl on the International Petroleum Exchange. But the March natural gas contract gained 1.7¢ to the equivalent $2.81/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 13¢ to $30.71/bbl Friday.

For the full week, however, the OPEC basket price averaged $30.29/bbl, down 52¢ from the previous week. So far this year, the OPEC basket price has averaged $30.34/bbl, compared with price averages of $24.36/bbl for all of 2002 and $23.12/bbl for 2001.

Contact Sam Fletcher at samf@ogjonline.com