FUTURES MOVERS: Energy ends a whirlwind week - Crude, heating oil and unleaded gas close higher

cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Update: 3:29 PM ET March 7, 2003

NEW YORK (CBS.MW) -- Crude and petroleum-product futures prices Friday closed the week around 3 percent higher, with concerns over U.S. supplies high on traders' minds amid war preparations.

Traders also sought to anticipate what OPEC's next move, if any, might be on production. The Vienna-based organization of oil exporters will meet to discuss the state of oil supplies and prices.

Crude for April delivery rose by 78 cents to close at $37.78 a barrel on the New York Mercantile Exchange session. A week ago, it closed at $36.60.

Concerns weighing on the energy markets this week included a possible interruption in Kuwait's oil output as the neighbor of Iraq prepares its northern oil fields for a possible outbreak of war.

"Crude oil and the energy complex will continue to remain hostage to higher prices as inventory levels are at three-decade lows, and there seems to be no chance for immediate relief as OPEC is at the upper end of their production limits," said John Person, head financial analyst at Infinity Brokerage Services.

At the same time, Grady Garrett, chief trading strategist at EnergyTrendAlert.com, said it couldn't be ruled out that OPEC won't be willing to "step in the production gap" as the start of a military conflict appears to grow nearer.

"Not only must the bulls deal with crude trading at these rarified levels, but also with the knowledge that the Bush administration could open the tap to the Strategic Petroleum Reserve," he noted.

There certainly was more than enough for commodities traders to chew over as the week wound down.

On Thursday, President Bush said he's prepared to order U.S. troops into Iraq to topple Saddam Hussein even without the backing of the United Nations.

And earlier Friday, wire services reported that two of Osama bin Laden's sons had been arrested in Afghanistan in a joint operation involving U.S. forces. But U.S. sources disputed the report arrests. "We have no information to substantiate that report," said White House spokesman Ari Fleischer in a Friday afternoon briefing.

At the United Nations, chief weapons inspector Hans Blix requested more inspectors and said many question remained answered in regard to Iraq. However, he also reported some grudging progress in the destruction of banned weapons. See full story.

Person noted that Blix confirmed that individual Iraqi scientists are requesting private interviews, which "supports the view that they are under duress." It's also "supporting evidence that Saddam's 'iron hand' and deceptiveness is still at work," he said.

Also Friday, the U.S. and Great Britain set a March 17 deadline for Saddam Hussein to comply with requests to destroy or surrender its weapons of mass destruction.

OPEC meeting on tap

At Tuesday's meeting, the OPEC cartel will have to decide the best way to balance the potential loss of Iraqi oil, in the event of war, with the usual falloff in demand for oil seen during the second quarter.

OPEC has said it will focus on the state of worldwide inventories, which currently stand at low levels, as well as the possibility of an oil glut during its meeting, according to an Energy Department report.

Most analysts believe the cartel will hew to its official production quota of 24.5 million barrels per day, with Saudi Arabia unofficially boosting its output to make up for oil lost during Venezuela's ongoing oil strike and for the possible loss of Iraqi oil. Although Iraq belongs to OPEC, its output isn't counted against members' aggregate daily production.

Saudi Arabia produces some 9 million barrels per day and claims it can raise output to 10.5 million barrels if absolutely necessary.

But as Kevin Kerr, analyst at Weiss Research, pointed out, it would take "at least three months to do so -- and that's nowhere near enough to satisfy the market."

Heating fuels gain

Also on Nymex, April heating oil added 5.29 cents to close at $1.1085 a gallon and April natural gas added 14.9 cents to $6.993 per million British thermal units after dropping around 3 percent Thursday.

A week ago, heating oil settled at $1.0721, while natural gas stood at $8.101.

While the calendar says spring is two weeks away, traders and suppliers "have a hard time seeing a relief in the weather when there is a current disruption in deliveries and an immediate demand in heating fuels," said Infinity's Person.

On Thursday, the Energy Department said natural-gas inventories fell by 176 billion cubic feet during the week ended Feb. 28 -- smaller than many analysts' expectations. By the same token, total stocks of 838 billion cubic feet are 981 billion cubic feet below the year-ago level and 602 billion below the five-year average.

"Most believe this week's draw could be last of the winter's most sizeable pulls," said Michael Fitzpatrick, an analyst at Fimat USA.

However, he said the market is still coming to terms with the fact that gas in storage may hit a record low under 600 billion cubic feet by the end of the winter heating season.

"Although many do not expect an extreme shortage of gas, most foresee a tight supply situation this summer, when gas-fired generation for cooling loads competes with injections for next winter's heating season," Fitzpatrick explained.

Distillate supplies, which include heating oil, stand at their lowest level for this time of year since 1963 -- nearly 26 percent below the level seen a year ago, according to an Energy Department report issued Wednesday. See full story.

Gasoline soars

Prices for unleaded gasoline also continued to climb. The nation's inventories of the commodity stand at around 6 percent below their year-ago level.

April unleaded gasoline added 5.07 cents to close at $1.1567 a gallon on Nymex -- up from last Friday's close at $1.1045.

And at the retail level, average gasoline prices averaged $1.684 a gallon, up 45 percent from the $1.16 they were at a year ago, according to AAA's Daily Fuel Gauge Report.

Prices thus are nearing their all-time high of $1.718 that they reached in May 2001. In California, the average price for regular unleaded stood at $2.057 a gallon.

Meanwhile, gold for April delivery sank as much as $10 an ounce amid the flurry of reported developments surrounding Iraq and the war on terror. See Metals Stocks.

In the equities arena on Friday, oil-services companies traded mostly lower, as the Philadelphia Oil Service Index ($OSX: news, chart, profile) chalked up loss of more than 1 percent. See Energy Stocks.

And the Reuters/CRB Index, a broad-based measure of the commodity futures market, closed at the 247.2 level, up 0.8 percent amid strength in the energy futures. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.