MARKET WATCH
Crude oil futures prices fall again

Paula Dittrick
Senior Staff Writer
HOUSTON, July 22 -- Crude oil futures prices on July 21 fell for a second consecutive day in New York and London markets upon news of explosions in London and China's decision to strengthen its currency against the dollar.

London authorities reported explosions and attempted explosions on three subway stations and a bus. No fatalities were reported in the July 20 incidents compared with the deaths of more than 50 people during July 7 attacks on three subway stations and a bus.

Police said it's too early to determine whether there is any link between the July 20 and the July 7 attacks.

Meanwhile, analysts said that terrorist acts typically trigger low energy prices upon concerns of a possibly weakening economy and reduced oil demand, in part because of fears about a possible travel slowdown.

China revalued the yuan to 8.11 yuan to the dollar. The action made the yuan 2.1% stronger against the dollar, and the yuan now trades within a band against a basket of currencies instead of only against the dollar.

Oil traders believe that the currency move was too small to significantly lower the price of China's imported oil and therefore appears unlikely to significantly increase Chinese oil demand.

Analysts said it's still unclear how much the yuan will be prove to be market driven rather than influenced by the Chinese government.

Revised price forecasts
Jefferies & Co. Inc. boosted its oil price forecast for benchmark US light, sweet crudes on the New York Mercantile Exchange to an average of $54/bbl from $46/bb for 2005 and to $50 from $40/bbl for 2006-07.

The Organization of Petroleum Exporting Countries apparent willingness to support a higher price level was cited as among the keys to the higher forecasts.

"We remain confident that solid demand, weak non-OPEC production growth, and limited new OPEC productive capacity, particularly for light sweet crude grades, will yield tight worldwide oil supply-demand fundamentals over the next several years," said Stephen Gengaro, a Jefferies analyst.

Analyst Frank Bracken said Jefferies raised its NYMEX natural gas futures price projection to $6.80/MMbtu from $5.63 for 2005 and to $6.20/MMbtu from $5.50 for 2006. On July 21, Jefferies initiated a 2007 projection of $5.75/Mmbtu.

Energy Security Analysis Inc. of Boston issued a Global Crude Oil Market Outlook saying that it believes tighter capacity will keep NYMEX crude oil futures prices at more than $55/bbl during 2006.

Rick Mueller, ESAI oil services manager, foresees continued tightness in the market going into 2006, saying spare production capacity will still be below historic standards.

"There is no question that we are currently in an extremely tight market, with the lack of spare production capacity casting a bullish shadow," Mueller said. "In such an environment, any potential supply disruption will exert a more intense effect on prices."

Energy prices
The September contract for benchmark US light, sweet crudes on the New York Mercantile Exchange dropped 89¢ to $57.13/bbl. The October contract settled down 84¢ at $57.86/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., fell $1.24 to $55.49/bbl.

Heating oil for August declined by 2.88¢ to $1.5689/gal on NYMEX. Gasoline for August gained 0.50¢ to $1.6810/gal.

The August natural gas contract fell by 25¢ to $7.30/MMbtu on NYMEX. Enerfax Daily analysts said reaction to the US Energy Information Administration's weekly storage inventory report contributed to that dip.

The EIA reported a storage injection of 59 bcf to 2.3 tcf for the week ending July 15. That injection surpassed traders' expectations but was still well below a build of 77 bcf for the last period last year. Gas storage is up 122 bcf from the same time last year and up 220 bcf from the 5-year average.

In London, the North Sea Brent crude oil contract declined by 93¢ to $55.72/bbl on the International Petroleum Exchange.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes climbed by 92¢ to $51.23/bbl on July 20.
Contact Paula Dittrick at paulad@ogjonline.com

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