Energy Sector Roundup: Oil Falls
Monday November 26, 5:39 pm ET
Oil Farther From $100, Economy Seen Suffering From High Oil Prices, Coal Prices Climb
NEW YORK (AP) -- Following is a summary of top stories in the energy sector Monday afternoon.
Oil and Gasoline Contracts Bid Lower
Oil futures retreated as traders expect OPEC ministers will agree to raise crude production during a meeting next week. The weakening dollar helped limit crude's decline.
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At the pump, gas prices fell further from recent highs. The average national price of a gallon of regular gas slipped 0.1 cent overnight to $3.085 a gallon, according to AAA and the Oil Price Information Service, and is off 2.7 cents in less than two weeks.
Light, sweet crude for January delivery fell 48 cents to settle at $97.70 a barrel on the New York Mercantile Exchange. Oil reached a trading record of $99.29 last week, and is within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.
Heating oil rose 0.24 cent to settle at $2.7066 a gallon on the Nymex after earlier setting a new record of $2.7272 a gallon on forecasts for colder weather in the Northeast over the next couple of weeks. Natural gas for December delivery rose 2.3 cents to settle at $7.723 per 1,000 cubic feet.
December gasoline futures fell 2.56 cents to settle at $2.4414 a gallon on the Nymex.
CERA Sees Harm in High Oil Prices
Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA) can't see much good coming out of high oil prices. "Oil prices at this level will themselves be a negative in conjunction with everything else going on in the U.S. economy," he said. "While $60 or $70 oil had little effect on the economy, that does not mean the same will hold true for $100 oil."
Yergin said investors who traditionally fled to the dollar in times of economic uncertainty instead turned to oil as the dollar grew ever weaker.
James Burkhard, managing director of CERA's oil and gas group said oil prices around $100 move the economy and world politics into "uncharted water." He said oil prices averaging about $110 for six months or more will push the world into a serious economic downturn.
"Even prices in the $90s have negative impacts on the economy and consumer spending. We just haven't seen the full effects yet," he said. And if prices go even higher?
"CERA's Break Point scenario demonstrates that $120-plus prices would not only have major economic impact, but would lead to much stronger conservation policies among consuming countries and would greatly accelerate innovation and efficiency and a move away from oil, even in transportation."
Ethanol Shares Rise on "Buying Opportunity"
Shares of ethanol producers rose after a Morgan Stanley analyst cited a buying opportunity after a recent sell-off in the sector.
Analyst David Wilson also noted a new federal renewable fuels standard (RFS) this year would increase the amount of ethanol that must be blended with gasoline.
"Ethanol stocks have traded down 19 percent since the last week in October despite an ethanol price that has moved up 12 percent," Wilson said in a note to investors. "This recent performance combined with our conviction regarding a new RFS this year creates a short-term buying opportunity in the ethanol space."
Pacific Ethanol Inc. gained 44 cents, or 10.4 percent, at $4.66. Aventine Renewable Energy Holdings Inc. rose 76 cents, or 9.5 percent, to $8.76, as BioFuel Energy Corp. added 14 cents, or 3.5 percent, at $4.18. Verasun Energy Corp. rose 17 cents to $10.38.
Occidental Petroleum Extends Libya Contract
Occidental Petroleum Corp. will expand an existing contract with Libya's national oil company.
The agreements cover offshore areas with about 2.5 billion barrels of recoverable high-quality oil reserves.
Over the next five years, Occidental expects the site will need about $5 billion in capital investments. Occidental and Austrian oil and gas company OMV AG will contribute 50 percent of the development costs, with Libya's NOC funding the other half.
Occidental will have a 75 percent interest, OMV 25 percent. The contract also provides for a $1 billion signature bonus payable over 3 years.
Occidental expects the investments to increase gross production to more than 300,000 barrels per day from the current level of around 100,000 barrels per day.
"Overall, our first pass look suggests this is a material positive for Occidental," said Citi Investment Research analyst Doug Leggate. "We estimate the initial earnings uplift is around 5 percent, rising to 16 percent at peak production, which we assume around 2012."
Last week Exxon Mobil Corp. signed a five-year agreement with Libya's national oil company to explore for oil and gas about 110 miles off the coast.
James River Coal Prices Rising Along with Global Markets
Coal producer James River Coal Co. said it reached agreements in October and November to ship low-sulfur Central Appalachian (CAPP) coal next year at an average price of $54.76 per ton.
The average price is well above third-quarter agreements to ship coal at $47.14 per ton.
"We continue to have a significant amount of our expected 2008 CAPP shipments available to price and sell into the strengthening world markets," Chairman and Chief Executive Peter T. Socha said in a statement.
Energy Department data showed the spot price for CAPP coal rose over 8 percent in the last month, to $52.95 per ton.
Coal prices are rising in a number of markets as demand increases. Platts reported that prices for Richards Bay coal, a major South African coal terminal that ships mainly to Asia and Europe, jumped to about $100 a ton after a lightning strike knocked out power to a key rail line. The line is operating at about 50 percent capacity and may shut down completely between Christmas and New Year's Day.
Drybulk Rates Sink While Oil Tankers Pick Up Steam
Drybulk shipping rates fell again Monday. The Baltic Dry Index, which tracks rates on 40 routes for vessels that carry cargoes such as grain, iron ore and coal, closed at 10,003, down from a record high of 11,039 on Nov. 13.
Rates have declined in recent weeks as Chinese steel producers maneuvered for better rates ahead of expected increases in iron ore contract by April. Morgan Stanley analyst Ole Slorer said the cancellation of 20 iron-ore cargoes by miner CVRD and some excess tonnage in medium-sized vessels also pushed the drybulk market lower.
At the same time, Slorer said oil tanker rates have rallied, topping $100,000 per day over the weekend as more vessels are chartered to carry oil from the Middle East to Europe and the U.S.
GE Energy in Turbine Supply Deal with TPI
GE Energy signed an agreement with wind turbine blade supplier TPI Composites. Financial details were not disclosed.
TPI plans to build a 316,000 square foot facility in Newton, Iowa, that will create about 500 new jobs. The new plant will expand TPI's capacity to produce blades for GE's 1.5-megawatt wind turbines, which are among the most widely used wind turbines. More than 6,500 are installed worldwide.
--Compiled by AP Business Writer Greg Stec. Questions or comments can be directed to gstec@ap.org.
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