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Oil prices end 2005 above $61 a barrel Oil prices up 40% from start of year, natural gas surged 80%; U.S., Chinese demand expected to keep prices up, in $50 range Brad Foss Associated Press Business Writer
Oil futures settled above $61 a barrel Dec. 30 and finished 40 percent higher than they started in 2005, capping a tough year for energy consumers but a great one for the petroleum industry as prices soared amid strong demand and tight supplies.
For similar reasons, there was an even sharper advance in 2005 in the price of natural gas, which surged more than 80 percent, making it extra expensive to produce electricity, manufacture goods and heat homes.
Many analysts believe the average price of oil will be below $60 in 2006, though not by much as U.S. and Chinese economic growth continues and hawkish members of OPEC, such as Venezuela and Iran, express growing interest in a production cut as early as the first quarter.
“Because of China, oil is never going to go to the $18 to $22 level again in our lifetime,” said Mike Fitzpatrick, a broker at Fimat USA in New York. “But it certainly doesn’t have to be $60.”
Fitzpatrick believes average oil prices will be closer to $50 a barrel in 2006, an outlook predicated on a slowdown in economic growth in the second half of the year — because of high energy prices. “At some point, this has to have a deleterious economic effect,” said Fitzpatrick, whose price outlook is more bearish than many of his peers. $50 would be welcome news While unthinkable just a few years ago, a price near $50 a barrel would actually be welcome news to energy-intensive industries such as airlines and trucking companies, who have retooled their operations to use fuel more efficiently.
There are signs that some homeowners and motorists are also making small changes to keep their energy consumption in check, though analysts say demand is still on the rise and that the tight supply of refining capacity in the United States is likely to boost the country’s dependence on imports and keep pump prices high.
Average retail gasoline prices in the United States surged to record territory above $3 a gallon after Hurricane Katrina, which knocked out refineries and caused power outages that disabled pipelines that carry motor fuel from the Gulf Coast to the Northeast and Midwest. Now, the average retail price of gasoline nationwide is $2.19 a gallon, or 41 cents higher than a year ago. Little excess capacity One thing that all oil analysts agree on is that the world’s largest petroleum producers are pumping almost as much as they can, with little excess production capacity available in the event of a prolonged supply disruption. The mere threat of lost output, whether because of geopolitical strife or a natural disaster, will be enough to keep the market on edge in 2006.
“It won’t take much to up the price again next year,” said London-based oil analyst John Hall of John Hall Associates.
“My guess is that OPEC is quote committed to holding up the price” at present levels, Hall said.
Hall also focused on Iraq, Iran and Nigeria as potential problem countries, saying output snags and increasing political tensions could drive prices upward.
We’re in a post-Christmas lull, but “things will start to warm up when OPEC ministers start talking about what to do,” ahead of their January meeting, Hall said. Even now, “they’re all saying the same thing — ‘we’re going to cut.’”
On Dec. 30, light sweet crude for February delivery dropped 46 cents to $59.83 a barrel on the New York Mercantile Exchange by midday in Europe, reversing much of its 50-cent surge the previous day. Traders focused on U.S. weather With the Northern Hemisphere winter only a week old, traders remain focused on the weather in the United States, the world’s largest energy market.
For that reason, natural gas, which briefly topped $15 per 1,000 cubic feet earlier in December, has been under pressure lately amid forecasts of mild weather in much of the United States.
On Dec. 30, natural gas futures inched 0.2 cent higher to settle at $11.225, up 83 percent on the year. On Dec. 29, the Energy Department said domestic storage of natural gas stood at 2.64 trillion cubic feet on Dec. 23. That is 8 percent below year-ago levels and 1 percent above the five-year average for this time of year.
Heating oil dropped marginally to $1.6925 per gallon, while gasoline futures slipped to $1.6403 a gallon.
On the ICE Futures exchange in London, Brent crude eased 40 cents, to $57.67 a barrel.
The price of Nymex crude is about 14 percent below its Aug. 30 high of $70.85. Oil prices remained above $60 a barrel for months after Katrina disrupted Gulf of Mexico oil and natural-gas output. About one-quarter of the region’s daily oil production, and one-fifth of its natural gas production, remains offline, because of damage to offshore platforms, underwater pipelines and onshore processing plants.
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