Market watch: Cold weather, short supplies boost heating oil, gas prices

ogj.pennnet.com By Sam Fletcher OGJ Senior Writer

HOUSTON, Feb. 7 -- Colder weather and declining supplies pushed heating oil futures prices to a 26-month high and nudged the March natural gas contact nearer the $6/Mcf mark Thursday on the New York Mercantile Exchange.

Heating oil for March delivery jumped 3.31¢ to $1.03/gal in the wake of earlier reports by both the US Department of Energy and the American Petroleum Institute of large declines in US inventories of the fuel during the week ended Jan. 31 (OGJ Online, Feb. 6, 2003). Low temperatures in the major Northeast US market had heating-oil distributors scrambling for supply.

Analysts said energy market prices also were prodded higher by continued tough rhetoric among US officials against Iraq.

Meanwhile, Alvaro Silva Calderon, secretary general of the Organization of Petroleum Exporting Countries, and Claude Mandil, new executive director of the Paris-based International Energy Agency, called Friday for cooperation to stabilize world energy markets.

Visiting OPEC Secretariat offices in Vienna in his first official engagement outside of Paris, Mandil said IEA has the ability and capacity to deal with oil shortages. But as a policy, he said, IEA recognized that oil producers should always act first in times of difficulty. He praised OPEC's move to increase oil production quotas this month to offset the 68-day strike in Venezuela that curtailed oil production and exports.

In a nationwide radio and television speech Thursday, Venezuela's President Hugo Chávez announced that his government and the Central Bank of Venezuela signed a new foreign exchange agreement setting a new exchange rate of 1,600 bolivars to the US dollar. The exchange rate plunged to a record low of 1,853 bolivars to the dollar on Jan. 21, prompting Venezuela's Finance Ministry to suspend foreign exchange trading since Jan. 22.

Chávez also decreed maximum price controls on a wide range of goods and services including food, medicines, soap, school books and uniforms, water, electricity, natural gas, residential telephone services, public transport, and hospital care. He said his government is working on a new penal law dealing with speculation in foreign currency and appointed a new Foreign Exchange Administration Commission.

Meanwhile, officials at Petroleos de Venezuela SA (PDVSA) said 9,000 of the state oil company's 35,000 employees have been fired for participating in the strike, up from 5,000 previously.

PDVSA Pres. Alí Rodríguez Araque has said he plans to restructure the company's entire workforce to improve its efficiency. However, critics claim Chávez's administration plans to eliminate political opposition and maintain control of the state-owned company.

Energy prices The March contract for benchmark US light, sweet crudes gained 23¢ to $34.16/bbl Thursday on NYMEX. The April position inched up 6¢ to $33.33/bbl. Unleaded gasoline for March delivery slipped by 0.32¢ to $1.03/gal.

Meanwhile, European gasoline prices this week jumped to the highest level in 2 years as refiners maneuvered to ship more fuel to American markets. With virtually all of its refining capacity shut down by the strike, Venezuela is purchasing more gasoline abroad.

The recent surge in gasoline futures prices on NYMEX and declines in US supplies also opened more of the US market to imports. Traders expect at least 1.5 million tonnes of gasoline to be sent from Europe to the US in February.

The March natural gas contract gained 18.4¢ to $5.83/Mcf Thursday on NYMEX, wiping out the previous day's 11.8¢ loss to profit taking. That contract hit a new high of $5.91/Mcf in early trading Thursday after the US Energy Information Administration reported the withdrawal of 208 bcf of natural gas from US underground storage during the week ended Jan. 31, said analysts at Enerfax Daily. However, prices were rolled back in a wave of profit taking among locals and speculators at the end of the session

"The huge storage withdrawal reported this week caps the largest 3-week withdrawal, 674 bcf, in the market's history, leaving only 1.521 tcf in storage, well below the 5-year average," the analysts reported Friday. They cautioned, "Look for the market to hit $6(/Mcf) soon, at least momentarily. The cold is expected to hang around through the weekend."

Analysts said, "There is an unusually large number—about 18,000—of call options at the $6(/Mcf) level. However, so far, the March contract has failed to push through key technical resistance at $5.93(/Mcf), a level that was seen as a 50% retracement from its December 2000 highs of $10.10(/Mcf)."

In London, the March contract for North Sea Brent gained 8¢ to $31.44/bbl on the International Petroleum Exchange. The March natural gas contract dipped 2.3¢ to the equivalent of $2.69/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes gained 25¢ to $30.77/bbl Thursday. Contact Sam Fletcher at samf@ogjonline.com