LOS ANGELES, Feb. 7 (UPI) -- Energy prices will remain on the high side for the near future as cold winter weather boosts natural gas demand at the same time world tensions keep the oil markets on edge, analysts predicted Friday.
The gloomy forecast from the Energy Information Administration appeared to be on the right track Friday as the New York Mercantile Exchange saw crude prices top $35 per barrel while heating oil futures surged to the highest level in two years.
The reasons for the bullishness, which the EIA expected to continue through the winter, boiled down to fears of a war in the Gulf interrupting imports and colder weather in the Midwest and along the East Coast cutting further into reserves of heating oil and gas.
Although there has been no actual shortage of oil thus far, the sentiment among traders is to prudently make certain they don't get caught short if the United States and Iraq come to blows in the Gulf at the same time Venezuela's oil industry is handcuffed by ongoing labor and political problems.
"World oil markets will likely remain tight through most of 2003, as petroleum inventories and global spare production capacity continue to dwindle amid blasts of cold weather and constrained output from Venezuela," the EIA concluded. "OPEC's efforts to increase output to make up for lower Venezuela output has reduced global spare production capacity to only 2 million barrels per day, leaving little room to make up for unexpected supply or demand surprises."
The desire to stock up on oil appeared to become more intense Friday as prices jumped in all NYMEX sectors. NYMEX saw March heating oil climb Friday to a 23-month high of $1.113 per gallon before settling at $1.095, up an impressive 6.86 cents on the day.
March crude climbed 96 cents to $35.12 per barrel on NYMEX after the International Petroleum Exchange in London posted a 90-cent gain to $32.34 per barrel.
Other NYMEX prices included March gasoline, up 3.87 cents at $1.067 per gallon, and natural gas jumping 21.5 cents to $6.043 per million BTU.
The increases came as the EIA estimated that natural gas demand this winter would be 8 percent higher than last year while gas in storage has been running 17 percent under the 5-year average.
"By the end of this January, working gas in storage was about 35 percent lower than at the end of January 2002 and 17 percent below the previous 5-year average," the EIA said. "Considering not only the currently high world oil prices but also the low storage levels, natural gas prices are likely to remain relatively high through February and perhaps well into spring."
The demand for oil was projected to increase 3 percent over the next two years on the assumption that the nation's economy will grow and increased air travel will boost demand for jet fuel.
"Spot prices for heating fuels surged as crude oil and natural gas prices rose rapidly in the face of the Venezuelan oil export cutoff and sharply falling levels of domestic natural gas in storage," the EIA said. "Some of these commodity price changes are still working their way to the consumer level."
The prospect of higher retail heating oil prices in the Northeast prompted a consumer group to ask the state of New York on Friday to investigate possible price manipulation, stating that the lack of a physical shortage of oil undermines the justification for higher prices.
"It looks to us as though there are a few large players in the market that are using the anxiety over Iraq to create an artificial shortage in the New York region," accused Tim Irving, executive director of HEAT USA. "If a few big sellers are able to keep their oil from reaching the market, even for a few days, they can foster anxiety, and sell into that fear at a huge profit."
The Pacific Northwest Bonneville Power Administration said Friday that it would seek a rate increase for the hydroelectric electricity it produces, due not only to cold temperatures but also due to a lack of seasonal rains.
"We held off proposing higher rates as long as we could, hoping that water and economic conditions would improve," explained BPA Administrator Steve Wright. "Neither has happened. We have had some success with cost management, but much more needs to be done."
