FUTURES MOVERS
Storm Ernesto expected to reach hurricane forceOil, natural-gas futures gain on hurricane threat
By Myra P. Saefong & Wanfeng Zhou, MarketWatch
Last Update: 12:42 PM ET Aug 26, 2006
NEW YORK (MarketWatch) -- Tropical Storm Ernesto is expected to continue strengthening over the weekend and could reach near hurricane strength as it passes near Jamaica, the National Hurricane Center said Saturday.
Ernesto is moving toward the west-northwest at about 14 miles per hour. Maximum sustained winds are near 50 miles per hour. The force should bring the core of Ernesto to south of the Southern Coast of Hispaniola Saturday and near Jamaica Sunday, the NHC said in its latest update. Read the latest advisory.
The government of Jamaica has issued a tropical storm warning and a hurricane watch. Meanwhile, the government of the Cayman Island has also issued a hurricane watch, the NHC said.
A tropic storm warning remains in effect for the south coast of Hispaniola.
Forecasts indicated that Ernesto, formed in the Caribbean Sea on Friday, will be a Gulf of Mexico hurricane by Tuesday, according to meteorologists at weather.com.
Ernesto was located about 250 miles south-southwest of Santo Domingo, the capital of the Dominican Republic and about 420 miles east-southeast of Kingston, the capital of Jamaica, the NHC said.
This year's North Atlantic hurricane season has been uneventful so far, but
the possibility of a tropical storm reaching the Gulf reminded investors about the damage of supply inflicted by Katrina and Rita last year. Ernesto could develop into the first hurricane of the 2006 Atlantic hurricane season.
Hurricanes Katrina and Rita last year cut natural-gas production in the Gulf of Mexico between Aug. 26 and June 19 by 803.6 billion cubic feet -- 22% of yearly output, according to U.S. data. See full story.
"If the storm intensifies over the weekend, Sunday night's electronic trade could open sharply higher," said Kevin Kerr, editor of Global Resources Trader, a newsletter of MarketWatch, the publisher of this report.
Crude-oil futures closed modestly higher Friday, but natural-gas prices scored a gain of over 6% for the week as forecasters predicted that a tropical storm in the Caribbean has the potential to threaten the Gulf of Mexico and disrupt energy production. "Storm watch 2006 has begun," said Phil Flynn, a senior analyst at Alaron Trading in Chicago.
October-dated crude-oil contracts closed at $72.51 a barrel on the New York Mercantile Exchange, retreating from a session peak of $73.75 -- the highest level seen since Aug. 16. It was up 15 cents for the session and up 41 cents from last Friday's close of $72.10.
Other petroleum contracts also rose, but saw mixed results for the week. September gasoline futures closed up 3.36 cents to $1.8951 a gallon, a few cents lower for the week, while September heating oil closed nearly flat at $2.0298 a gallon for the day, up just pennies from last Friday.
Meanwhile, natural gas for September delivery tacked on 7.8 cents to close at $7.157 per million British thermal units, easing from a two-week, intraday high of $7.52. But the contract ended last Friday at $6.731, putting the week's gain at 6.3%. Oil prices managed to close higher, but retreated from the day's best level as well. The pull back was based on "some profit taking ahead of the weekend as sentiment seems to be a wait-and-see type attitude," said Kerr. October crude was trading slightly weaker in electronic dealings late Friday. September natural gas was also modestly lower, but holding above $7.
The storm is "certainly one of the big drivers behind oil and gas right now, but there are so many uncertainties ... from Venezuela's new Chinese deal, to Israel threatening to attack Iran and new violence in Nigeria," said Kerr, in comments ahead of the weather system's upgrade. "On top of all that, the BP announcement that everything is not so hunky-dory in Alaska is rallying prices too," he said.
A tropical storm watch for Haiti and Jamaica has been issued, the NHC said in a 5 p.m. Eastern time report Friday. "Additional strengthening is possible during the next 24 hours," it said.
"Ernesto could potentially form into a ... hurricane by early next week, but could be wiped out by dry air in the region just as well," said Ronald Barone, an analyst at UBS. The 2006 hurricane season, which ends officially on Nov. 30, has gotten off to a "much slower start" than last year, he said.
Oil's woes
Meanwhile, oil hasn't gained as much as natural gas in the last few days, but it's finding additional support from another cut in production at the Prudhoe Bay oil field in Alaska.
BP said Thursday that it cut Prudhoe output by 90,000 barrels, putting total production at 110,000 barrels per day, because of a technical problem, and said it will likely stay that way for several days, according to AFP. The field usually produces around 400,000 barrels per day, but that was cut in half earlier this month due to a pipeline leak.
Meanwhile, Nigerian soldiers have burned hundreds of slum houses, apparently in retaliation for the killing of a soldier during a kidnapping of foreign oil workers, BBC News reported, citing comments from residents in the city of Port Harcourt.
The oil market has closely watched violence in Nigeria, where abductions and attacks on oil facilities have translated into a reduction in the country's oil production by 25%, BBC said. Nigeria normally produces about 2.4 million barrels of oil per day.
At the same time, an oilfield-development deal signed by Venezuela's Hugo Chavez and China's Hu Jintao represents a strengthening of energy ties between the Latin American exporter and the oil-hungry Asian power, but the deal appears unlikely to threaten Venezuela's crude exports to the U.S. in the near term, analysts say. See full story.
But the back-in-focus dispute between the United Nations and Iran over its nuclear program has been an added support, said economists at Action Economics.
The U.S. would have to lift sanctions against Iran that have been in place for years and give assurances it has no policy of attempting to force regime change on the Islamic republic in order to resolve the nuclear dispute between Iran and the West, according to the U.K.'s Guardian newspaper.
The paper cited two unnamed Iranian political scientists familiar with the details of Iran's response earlier this week to a package of incentives offered by western governments in an effort to persuade Tehran to stop enriching uranium. Details of the 21-page response have not been made public, but the political scientists said that moderates in Iran gained the upper hand in a power struggle and are seeking a negotiated settlement of the dispute.
The West is worried that Iran is trying to develop nuclear weapons; Iran claims its program is aimed at generating power for civilian use. The United Nations passed a resolution in July that includes the threat of unspecified sanctions if Tehran fails to meet its demands.
Given all the uncertainties surround the oil market, crude is likely to continue to rally ahead of the Labor Day weekend holiday, "which will suck out gasoline supplies," said newsletter editor Kerr.
In equities, benchmarks tracking stocks in the oil and gas sectors rose, with the Oil Service Index ($OSX) gaining the most ground. See Energy Stocks.
And in Friday's metals trading, gold futures closed higher on the heels of a three-session pullback, marking a weekly gain of more than $9 an ounce. See Metals Stocks.
Taking a broad measure of the commodity-futures markets, the Reuters/Jefferies CRB Index stood at 336.26 points, up fractionally from the previous session. See more of the latest prices for commodity futures.
Myra P. Saefong is a reporter for MarketWatch in San Francisco.
Wanfeng Zhou is a markets reporter in New York.
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