MARKET WATCH
Front crude futures contract approaches $75/bbl

Sam Fletcher
Senior Writer

HOUSTON, May 3 -- Front-month crude futures prices again approached $75/bbl May 2 as the standoff between the United Nations Security Council and Iran over that country's nuclear program fanned fears of possible supply disruptions.

Traders also were nervous after the Bolivian army seized oil and natural gas fields in a move by President Evo Morales to nationalize the entire chain of Bolivia's hydrocarbons industry. The leftist president with close ties to Fidel Castro in Cuba and Hugo Chavez in Venezuela had vowed during his election campaign to increase state control over Bolivia's natural resources. Meanwhile, a fire shut down an Italian refinery in Sicily (OGJ Online, May 2, 2006).

At a May 2 industry panel session at the annual Offshore Technology Conference in Houston, Mohammed Hamel, head of the energy studies division of the Organization of Petroleum Exporting Countries, blamed increased trading in the commodities futures markets for exacerbating volatility in energy prices. That is due to market fears rather than any real shortages of crude, he said. "Even after the hurricanes (Katrina and Rita in 2005), there were no shortages of energy," Hamel said.

US inventories
The Energy Information Administration said May 3 that commercial US crude inventories increased by 1.7 million bbl to 346.7 million bbl during the week ended Apr. 28 and are at the highest level since May 29, 1998. Gasoline stocks rose by 2.1 million bbl to 202.7 million bbl in that same period, "due to a large build in blending components," said EIA. Distillate fuel fell by 1.1 million bbl to 114.5 million bbl, with declines in both diesel and heating oil.

US imports of crude were down by 53,000 b/d to 9.8 million b/d during that week. Input of crude into US refineries declined by 21,000 b/d to 15 million b/d, with units operating at 88.8% of capacity.

Energy prices
The June contract for benchmark US light, sweet crude finished at $74.61/bbl, up 91¢ for the day, after trading at $73.50-74.90/bbl May 2 on the New York Mercantile Exchange. The July contract increased 84¢ to $76.06/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 91¢ to $74.62/bbl. Gasoline for June delivery gained 2.85¢ to $2.18/gal on NYMEX. Heating oil for the same month advanced by 2¢ to $2.08/gal.

The June natural gas contract increased by 5.1¢ to $6.60/MMbtu on NYMEX, as it followed the crude market higher. "The fear in the market lured more hedge fund money, which has flooded in across the commodities complex," reported analysts at Enerfax Daily.

In London, the May IPE contract for North Sea Brent crude climbed by 75¢ to $74.64/bbl. Gas oil for May escalated by $11.25 to $644.75/tonne.

The average price for OPEC's basket of 11 benchmark crudes increased by $2.16 to $68.40/bbl on May 2. So far this year, OPEC's basket price has averaged 59.31/bbl, up from $50.64/bbl for all of 2005.

Contact Sam Fletcher at samf@ogjonline.com.

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