Market watch: Cold weather buoys gas futures prices

ogj.pennnet.com By OGJ editors

HOUSTON, Feb. 4 -- Forecasts of colder weather pushed natural gas prices toward a new 2-year high in the New York market Monday, while oil prices retreated as traders accepted claims by Venezuelan President Hugo Chávez that Venezuela's oil production has rebounded to at least 1.5 million b/d.

There were even indications of market fears of an oversupply of oil if Venezuela's production returns to its prestrike level of 3 million b/d during a seasonal decline in world demand for oil during the second quarter of this year. An agreement this week among Chávez's opponents to end the nonoil segment of a general strike aimed at forcing him from power apparently convinced traders that the 65-day crisis will not last much longer.

However, some industry analysts and political experts have predicted that it will take from 4 months to 2 years for Venezuela to return its oil production to prestrike levels (OGJ Online, Jan. 27, 2003). Some project that 400,000 b/d or more of Venezuela's production may have been permanently lost because of damage to wells and formations while production was shut in (OGJ Online, Feb. 3, 2003).

Meanwhile, Abdullah bin Hamad Al Attiyah, Qatar's minister of energy and conference president of the Organization of Petroleum Exporting Countries, said OPEC ministers have no plans to meet prior to their scheduled Mar. 11 gathering in Vienna. "Only at OPEC's March meeting will we discuss all options and how to react to the market situation then," he told Gulf News at the 2003 Environment and Energy Exhibition and Conference that opened Sunday in Abu Dhabi.

The March contract for benchmark US sweet, light crudes lost 75¢ to $32.76/bbl Monday on the New York Mercantile Exchange. The April position declined 58¢ to $32.16/bbl. Heating oil for March delivery fell 1.45¢ to 91.81¢/gal. Unleaded gasoline for the same month was down 0.92¢ to 95.68¢/gal.

However, the March natural gas contract jumped by 16.1¢ to $5.77/Mcf on NYMEX. "The market opened substantially lower around $5.50(/Mcf) but quickly rallied to about $5.70(/Mcf) by mid-morning and above $5.80(/Mcf) shortly after noon. Prices in the afternoon settled back somewhat, but with a steady close. Heavy fund and technical buying pushed the market through buy-stops at $5.61 and $5.75(/Mcf)," said analysts at Enerfax Daily.

They said a rupture Sunday night of a 24-in. segment of El Paso Corp.'s ANR Pipeline near Viola, Ill., helped boost gas futures and cash prices Monday. El Paso officials reported the rupture is being repaired and is under investigation (OGJ Online, Feb. 3, 2003). No breach of service was reported.

Meanwhile, colder-than-normal weather last week is expected to lead to an Energy Information Administration report Thursday of another large withdrawal from US underground storage, analysts said. "Look for a draw of about 200-210 bcf, compared with a withdrawal of only 78 bcf a year ago, and a 5-year average draw of 120 bcf," Enerfax analysts said. "According to Lehman Brothers, weather-normalized draws averaged 6 bcfd, or 42 bcf/week, more than the 5-year average. But a lot of additional volumes are also flowing out of storage to take advantage of the high prices. Futures volume (Monday) was about 85,000 contracts, with 35,000 spreads. Volume on Friday was 77,778 contracts."

In London, the March contract for North Sea Brent oil lost 85¢ to $30.25/bbl Monday on the International Petroleum Exchange. The March natural gas contract retreated 2.8¢ to the equivalent of $2.77/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes lost 42¢ to $30.29/bbl Monday.