Oil won't dry up, but it will cost us
chron.com
The nation likely will not face any supply disruptions despite the dwindling stockpiles of oil and natural gas, but it will pay the price for cutting it so close.
Energy experts said the depleted reserves that have been the driving force in the market won't go away in the months to come.
But analysts expect demand to decrease as the weather moderates, which should ease fears that energy supplies may not be sufficient to meet demand.
The nation is expected to end the winter heating season on March 31 with close to a record low storage amount of natural gas.
"I don't think there will be any supply disruption, although it will be a fairly tenuous balance," said Ron Gist, senior principal at energy consultants Purvin & Gertz.
Natural gas for April delivery at the Henry Hub closed on the New York Mercantile Exchange at $8.10 per thousand cubic feet, up 61 cents. For the week, the price of a thousand cubic feet of gas rose by $1.80, and are expected to remain high on the heels of another large withdrawal from inventories this week.
March heating oil settled at $1.2559 a gallon, up a whopping 10.16 cents a gallon. March gasoline futures ended with a gain of 1.97 cents at $1.0377 a gallon.
And light, sweet crude for delivery in April closed at $36.60 per barrel, down 60 cents per barrel. But prices jumped by $1.02 per barrel this week as oil inventories also continue to hover at a level sufficient to cover only two weeks of consumption.
As a result, the White House said Friday that President Bush is concerned about energy costs.
"There has been a confluence of factors involving both the cold weather and a shortage of supply that have led to an increase in prices that concern the president greatly," White House spokesman Ari Fleischer told reporters.
But so far, his feelings won't prompt any immediate action. The White House is drafting a new set of legislative proposals to encourage more production over the long haul rather than tapping the Strategic Petroleum Reserve, where 600 million barrels of oil are stored in case of major supply disruptions.
The biggest variables in the outlook for oil and natural gas are weather and war.
Oil prices nearly broke $40 a barrel this week -- just short of the record high of $41.15 hit in October 1990 ahead of theGulf War.
Gasoline prices declined slightly this week in Houston, but they are not expected to show any long-term weakness.
A gallon of regular unleaded gasoline in Houston was down 0.3 of a cent to just under $1.59, AAA said.
The Energy Information Administration, the research arm of the U.S. Department of Energy, is projecting prices at the retail level to rise from 4 to 8 cents in the near term.
The colder than normal weather is the chief culprit for higher gas prices. But there were also reports Friday that some of the natural gas storage infrastructure is beginning to show signs of strain because of spiking demand.
"What has really moved the cash market is a lot of storage facilities are being drawn down so fast that they are having pressure problems," said Warren Tashnek, vice president at Fimat Futures in Houston.
When the pressure declines in a storage facility, natural gas liquids separate from dry gas and can cause mechanical problems in compression units.
Over the longer haul, oil and gas companies are not moving to alleviate the shortages.
The high prices have not translated into a wave of new drilling, which is another concern because existing natural gas production is declining and new reserves are not being found to replace them.
Oil and gas exploration companies are not setting budgets based on the current high prices. They are cautious about ramping up exploration because no one believes such prices will sustain for any significant period.
The Baker Hughes rotary rig count, in its measure of inland and offshore rigs working in the United States, on Friday reported 912 rigs drilling, up from 782 at this time last year, when gas prices were in the $2.50 per thousand cubic feet range.
On days when natural gas supplies are short, the ones that will suffer are big users with interruptible contacts -- users who pay lower prices but risk getting cut off in periods of tight supplies.
"There are interruptible contracts on the pipelines so some of those people may be cut off," Gist said.
The Organization of Petroleum Exporting Countries has pledged to keep enough oil on world markets to avoid supply disruptions, even in the event of a war with Iraq. |
