Updated from 12:12 p.m. EDT
Prices for crude oil futures eased off two-month highs on profit-taking, expectations OPEC would keep production high and signs that Nigeria would restart production in downed oil fields.
Light, sweet crude for May delivery shed 55 cents to close at $67.39 a barrel on the Nymex. Oil prices pulled down the rest of the energy complex, with unleaded gasoline falling from a six-month high to settle at $1.97 a gallon, down 2 cents.
On Thursday, the May contract climbed 1.3% to $67.94, the highest price since Jan. 30. Soaring gasoline prices and tight supplies ahead of the peak driving season this summer have led crude prices higher. Gasoline and crude typically trade in tandem.
Even though political tensions have quieted down, they likely won't disappear anytime soon.
"Geopolitical events may move off center-stage and perhaps even send prices back toward the recent consolidation lows, but events are very far from resolution and still percolating and could boil over at any moment," said Michael Fitzpatrick, vice president of energy risk management at Fimat USA in New York.
Traders often buy and sell energy futures either on actual or expected supply problems. For example, even though oil supplies are at their highest point since April 1999, crude prices have risen 7% this year. So what's going on? Brokers are worried inventories could be depleted quickly if supply problems crop up abroad or demand spikes in the U.S.
Prices are so high that the president of the Organization of the Petroleum Exporting Countries, Edmund Daukoro, said Friday that the group would likely not trim production at its next meeting in June. OPEC pumps 40% of the world's crude and plays a large role in setting international oil prices.
Royal Dutch Shell's
( RDS-A) head of exploration and production, Malcolm Brinded, gave some relief to the energy market Friday when he said Friday that the oil giant would soon resume production at an offshore field in Nigeria that pumps 120,000 barrels per day. While Brinded did not give a restart date, Daukoro, Nigeria's oil minister, said he expected pumping to start next week.
Rebels have attacked pipelines and offshore platforms and kidnapped oil workers in Nigeria, cutting the country's daily crude production by around 25%. Most of the lost output has come from Shell, which has seen 455,000 barrels of crude per day vanish. Shell officials have not said when the Forcados field and export terminal would restart, but Daukoro said they would begin in about a month.
Still, the energy markets may not see much of Shell's offline production soon. The company has said it would not restart its platforms and fields until its workers' safety could be guaranteed. To compound matters, rebels said they would kill anyone found on Shell's abandoned platforms.
Nigeria has become key to American efforts to reduce its reliance on Middle Eastern crude because it produces light, sweet crude, which is easier and cheaper to refine. Africa supplies the U.S. with 15% of its oil, a figure expected to jump to 25% in the next decade. Most of that crude comes from the oil-rich Niger Delta, the site of ongoing rebel attacks.
Festering problems in Venezuela and Iran have also contributed to crude oil price spikes. Iran, OPEC's second-largest producer, has defied Western threats to cease nuclear development activities and has threatened to slash crude exports if the U.N. Security Council levies any sanctions against it.
Last week, the Security Council urged Tehran to end small-scale uranium enrichment and gave it 30 days to do so. The head of the U.N.'s nuclear watchdog, Mohamed ElBaradei, is slated to travel to Iran next week to hammer out a deal.
Members of the Security Council have toyed with levying a trade embargo against Iran, but that probably won't happen because of China's and Russia's reluctance. The U.S. ambassador to the U.N., John Bolton, said today that Washington could cut trade ties with Tehran if the Security Council fails to do anything.
Venezuela's president, Hugo Chavez, has taken control of oil fields, demanded higher taxes and royalties and imposed strict standards on contracts going back to 1990. After
refused to sign new profit-sharing agreements that gave the government a 60% share in some of their oil fields, the government reclaimed two fields that produce around 100,000 barrels of oil a day.
have also declined to go along with the new terms.
Chavez is trying to get as much as possible from foreign oil companies while prices are high. Venezuela is becoming increasingly important in a time of falling crude production because it has the world's largest reserves outside of the Middle East.
Tight inventories of gasoline have also roiled the energy markets and driven crude and gasoline prices higher. Since mid-February, gas prices have jumped more than 40%. Gasoline supplies have plummeted for the past five weeks and now stand at 211.8 million barrels, slightly below a year ago, because of heavy refinery maintenance and rising demand.
Refiners are operating at 85% capacity as they retool to make summer blends of gasoline and race to meet new fuel requirements. Refiners have until May, when their protection from water pollution lawsuits ends, to replace methyl tertiary butyl ether with ethanol. The federal Energy Act of 2005 dropped their liability protection, and refiners don't want to be responsible for water pollution caused by MTBE, a gasoline additive that reduces tailpipe emissions.
While analysts expect reduced stockpiles of gasoline to boost retail prices this summer, they disagree over whether they'll hit $3 a gallon. Much depends on the transfer to ethanol-based gasoline, supply problems abroad and the hurricane season, which begins in June.
"Without a question, we'll get to $2.70, but I don't think we'll get to an average of $3 a gallon unless there's some calamity, like another big hurricane," said Tom Kloza, publisher of the Oil Price Information Service in Wall, N.J. "This will be the season of hurricane hysteria."
Colorado State University forecasters released a report earlier this week predicting an active hurricane season, but not as busy as last year. There will likely be 17 named storms this year, compared with 27 in 2005, according to the university's Tropical Meteorology Project.
High inventory levels and warming weather pushed down natural gas futures by 22 cents to $6.74 per million British thermal units and heating oil by less than 1 cent to $1.88 a gallon. Natural gas supplies are 36% higher than the same time last year, and 15% more distillates are in storage than a year ago. Distillates include heating oil.
Natural gas futures have moved between $6.70 and $7.20 per million British thermal units as utilities and manufacturers snapped up the contract over pricier fuel oils. The contract is expected to continue trading in the same narrow band through the spring.