THE WALL STREET JOURNAL: Energy-Price Volatility Returns Due to Output Outages, Weather: “strong winds last week damaged a structure used by Royal Dutch/Shell Group to load tankers at the Draugen field in the Norwegian Sea. Shell shut down the field's 140,000-barrel-a-day output Friday after bad weather kept it from repairing the structure”: “…the company still had 72,000 barrels a day off line in Nigeria, despite an agreement last week between government officials and local protesters to lift an effective ban on production in one area of the Niger Delta. A separate, unrelated protest has recently shut down another 7,000 barrels a day of Shell oil from Nigeria…” (ShellNews.net) 11 Jan 05

By BHUSHAN BAHREE and CHIP CUMMINS

Staff Reporters of THE WALL STREET JOURNAL

January 11, 2005; Page C5

Energy prices have turned volatile again, driven by the impact of production outages and unfavorable weather that have prompted traders and investors to snap up oil and gas contracts ahead of this month's OPEC meeting, which some expect could result in further supply reductions.

Crude oil surged to a five-week high of $47.30 a barrel during trading yesterday before retreating to end moderately lower, as a broad rally in oil-related futures markets stalled. Analysts said the various production problems, combined with forecasts of cold U.S. temperatures, spurred the nearly $2 rally, but the supply snags were overshadowed by a sense that the market had gotten ahead of itself. February crude oil fell 10 cents on the day to settle at $45.33 a barrel on the New York Mercantile Exchange.

Nymex natural gas and heating oil also rallied sharply on concerns over the cold weather, but those markets also pulled back toward the session's end as crude fell. February natural-gas futures rose 15.8 cents to $6.159 a million British thermal units after moving as high as $6.55 a million BTUs, while February heating oil gained 0.3 cent to $1.2763 a gallon, down from the session high of $1.35.

Industry analysts reckon that about one million barrels a day of crude-oil production is now off the market, two-thirds of it because of pumping and transport shutdowns in the British and Norwegian sectors of the North Sea. In the Gulf of Mexico, the lingering impact of Hurricane Ivan continues to keep some 145,000 barrels of mainly light-crude production off line. In Nigeria, which also produces light, low-sulfur crude, output is still recovering from production problems because of vandalism and local disturbances.

"A lot of barrels are missing when we need them," said Roger Diwan, an analyst at PFC Energy, a Washington, D.C., consulting firm. Mr. Diwan expects more upward pressure on oil prices when China resumes, probably next month, aggressively buying light, low-sulfur varieties of crude, the kind preferred by refiners to make gasoline and other transport fields whose production has been particularly hard-hit by weather-related production problems.

Sweet crude "is the oil that everyone wants," says Deborah White, an analyst at Societe Generale in Paris. "Right now, it's Murphy's law -- whatever can go wrong is going wrong."

Gale-force winds have hampered repair work and tanker-loading plans at oil fields offshore Norway, bringing that country's stranded output to about 345,000 barrels a day, or more than 10% of Oslo's daily output of some three million barrels a day. Statoil ASA, the Norwegian oil giant, told Dow Jones Newswires that severe weather had prevented some crude loadings in the North Sea. Loadings were already facing delays because of pre-existing shutdowns in two fields, which have recently resulted in 205,000 barrels a day in lost production.

Meanwhile, strong winds last week damaged a structure used by Royal Dutch/Shell Group to load tankers at the Draugen field in the Norwegian Sea. Shell shut down the field's 140,000-barrel-a-day output Friday after bad weather kept it from repairing the structure. A Shell spokeswoman yesterday said the company was waiting for a "weather window" to make the repairs, but forecasts called for several more days of high winds.

The Shell spokeswoman said the company still had 72,000 barrels a day off line in Nigeria, despite an agreement last week between government officials and local protesters to lift an effective ban on production in one area of the Niger Delta. A separate, unrelated protest has recently shut down another 7,000 barrels a day of Shell oil from Nigeria, she said.

Iraq remains a wild card as elections there approach. U.S. and Iraqi officials have warned of heightened insurgency attacks -- including attacks against oil infrastructure. Baghdad hasn't yet resumed prewar production levels, but it has pumped a fairly steady amount of crude to world markets despite the insurgency.

The shutdowns coincide with a million-barrels-per-day supply reduction by the Organization of Petroleum Exporting Countries, the world oil cartel, which at a meeting in Cairo in December decided to trim its output this month. The combined two million barrels a day removed from markets by outages and OPEC cuts amounts to some 3% of world supply.

OPEC ministers are scheduled to meet in Vienna at the end of this month. Analysts expect the cartel may further reduce supply in a bid to preclude price drops in the spring, when demand for oil declines for seasonal reasons.

"None of this is good news for consumers," said Leo Drollas, deputy director of the London-based Centre for Global Energy Studies. Mr. Drollas said inventories of crude oil, notably in the U.S., the world's largest oil market, are still low when measured in terms of days of supply. That makes for a tight global market for oil. The production outages and OPEC's tight supply policy "make restoring stocks [to healthier levels] more difficult," Mr. Drollas said.

In other commodities markets:

LIVE CATTLE: Futures at the Chicago Mercantile Exchange gained, supported by forecasts of frigid weather later this week and the uncovering of preplaced buy orders that were hit during the rally. February live cattle gained 1.62 cents to settle at 90.55 cents a pound.

SOYBEANS: Strength in the physical soybean market raised futures prices at the Chicago Board of Trade, as swollen Midwestern rivers due to recent rains limit barge deliveries to the Mississippi Gulf. Speculators bought back previously sold positions, which also helped to push up soybeans. The January soybean contract gained 8.25 cents to $5.60 a bushel.

--Masood Farivar and Spencer Jakab of Dow Jones Newswires contributed to this article.

Write to Bhushan Bahree at bhushan.bahree@wsj.com

and Chip Cummins at chip.cummins@wsj.com

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