Energy Prices End Mixed

Meanwhile, earnings are strong at Marathon and Peabody.
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Updated from 1:15 p.m. EST

Energy prices ended mixed Thursday, with natural gas traders focusing their attention on seasonally high inventories and mild weather.

March crude picked up 41 cents to $66.26 a barrel, reversing a two-day swing in which the contract lost more than $2. Heating oil declined 1 cent to $1.77 a gallon and unleaded gasoline added 2 cents to $1.68 a gallon.

Natural gas for February delivery lost 23 cents to $8.23 per million British thermal units after a report on inventories came in roughly as expected. The contract, which expires Friday, dipped below $8 per million BTUs earlier this afternoon.

Storage inventories fell last week by 81 billion cubic feet to 2.49 trillion cubic feet. Analysts at Citigroup and Fimat USA were expecting a drawdown of between 58 billion and 82 billion cubic feet.

"With winter speeding by, there isn't much time left to generate significant demand," said John Kilduff, senior vice president of the energy risk management group at Fimat USA in New York.

About 17% of the Gulf of Mexico's production remains offline and likely won't return to production until late spring. Still, there should be enough gas to meet any spikes in demand unless several weeks of sustained cold weather materializes. Natural gas stocks are 7% higher than the same period last year and 22% higher than the five-year average.

Natural gas prices likely won't fall much lower, analysts said, because some meteorologists are predicting a short blast of cold air in February and traders will likely plunge back into the market to buy what has become the cheapest fuel in the market.

"With the fall in prices, demand is likely to pick back up again, putting upward pressure on prices," said Rakesh Shankar, an energy analyst at Economy.com in West Chester, Penn.

In the crude market, traders focused on the potential for overseas supply disruptions in a handful of political hotspots and bid oil prices up. Concern ran particularly high over Nigeria, where an attack by a rebel militia this week killed nine people at a site operated by Italian oil company Agip.

Royal Dutch Shell's

(RDS.A)

chief executive, Jeroen van der Veer, told

Reuters

Thursday that his company won't repair its damaged pipelines, platforms and pumping stations in Nigeria until discussions with the government over security begin. Shell has lost 221,000 barrels of daily oil production, or about 10% of Nigeria's average production of 2.2 million barrels.

Nigerian president Olusegun Obasanjo vowed Thursday to restore stability to the region. Meanwhile, a lingering standoff with Iran over nuclear research and the shutdown of two offshore terminals in Iraq have also added to traders' concerns.

On Wednesday, the Energy Department said U.S. crude inventories fell by 2.3 million barrels last week due to a barge accident that closed a Texas ship channel. Oil supplies still remain 11% above last year.

About 25% of gulf oil production has not recovered from last fall's storms, and likely won't return to full operation until the middle of this year. Shell's CEO said Thursday its Mars platform in the Gulf of Mexico would restart its daily output of 147,000 barrels of oil in the second half of 2006.

Energy companies are reporting fourth-quarter and year-end earnings starting this week, with

Marathon Oil

(MRO) - Get Report

,

Peabody Energy

(BTU) - Get Report

and

Halliburton

(HAL) - Get Report

releasing figures Thursday.

Marathon Oil, an oil producer and refiner, said net income almost tripled in the fourth quarter because of high energy prices and refining margins. The Houston company's earnings soared to $1.2 billion, or $3.43 per share, in the fourth quarter, up from $429 million, or $1.23 per share, in the same period last year.

Although crude prices rose in the fourth quarter, Marathon's refining earnings were helped more by high crack spreads, or the difference between what a company pays for crude and the price the refined product is sold for.

Marathon's revenue leapt to $17.3 billion, from $14.3 billion a year ago. Its shares rose 94 cents, or 1.3%, to $72.90.

Peabody Energy, one of the country's largest coal producers, said fourth-quarter net income rose 138% to $162.2 million, or $1.21 per share. Quarterly revenues hit $1.2 billion, a 21% jump from the prior year.

The St. Louis-based company is reaping the benefits of high natural gas, oil and steel prices and a renewed interest in coal plants. Coal costs about $3 per million British thermal units, compared to $10 for gas. Peabody is also the largest producer in Wyoming's Powder River Basin, a booming area for low-sulfur coal where prices have more than tripled in the past year to $20 per ton.

Shares of Peabody rose 40 cents, or 0.4%, to $92.08.

Halliburton reports earnings after the market closes Thursday.