MARKET WATCH: Crude prices climb to $68/bbl on NYMEX

Sam Fletcher
Senior Writer

HOUSTON, June 18 -- The front-month crude contract closed at $68/bbl June 15 on the New York market for the first time in 9 months.

Robert S. Morris, Banc of America Securities LLC, New York, attributed the rise in price to several factors. "Geopolitical tensions stepped back to the forefront with Iran stating that it won't suspend its nuclear program with the UN Security Council gearing up for a third round of even tighter sanctions. Also, violence erupted in Palestine with Hamas gaining control of the West Bank in fierce fighting with the rival Fatah group," he said.

Separately, Paris-based International Energy Agency (IEA) last week raised its worldwide crude demand growth forecast by 200,000 b/d to 86.1 million b/d this year, representing a 2% increase over 2006 vs. a previously projected 1.8% upward tick, due primarily to higher projected demand in Indonesia, Singapore, Nigeria, Venezuela, and the former Yugoslavia.

IEA also reiterated that the Organization of Petroleum Exporting Countries needs to increase production in this year's second half to avoid a tightening in global crude supplies. "However, OPEC has repeatedly stated that it believes there is plenty of crude, and Saudi Arabia said it would keep July loadings to Asian customers even with June. Finally, following the prior week's 3.5 million bbl build in US gasoline inventories, last week's report revealed essentially no build with [lower] refinery utilization," Morris said.

Meanwhile, gunmen were reported to have occupied an oil pipeline switching center in Nigeria over the weekend, preventing local workers and security forces from leaving. Eni SPA said 24 Nigerian workers and soldiers are being held after the June 17 attack on a flow station it operated in southern Bayelsa state. No injuries were reported, and the company didn't say if crude production had been curtailed.

Analysts in the Houston office of Raymond James & Associates Inc. reported crude prices were slightly lower in early trading on June 18, possibly indicating profit taking from last week's rally.

Energy prices
The July contract for benchmark US light, sweet crudes traded as high as $68.30/bbl June 15 on the New York Mercantile Exchange before closing at $68/bbl, up 35¢ for the day. The August contract gained 40¢ to $68.54/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., was up 34¢ to $68/bbl. Heating oil for July delivery dipped 0.55¢ to $2.01/gal. The July contract for reformulated blend stock for oxygenate blending (RBOB) escalated by 3.54¢ to $2.26/gal on NYMEX. RBOB has the potential to retest the $2.40/gal mark, said analysts at the Société Générale Group (SGG). "It's still a product supply-driven market," they said.

The July natural gas contract jumped up 11¢ to $7.92/MMbtu June 15 on NYMEX. On the US spot market, natural gas at Henry Hub, La., gained 10.5¢ to $7.58/MMbtu. "Although the near-month NYMEX futures natural gas contract rose roughly 25¢/MMbtu last week, the 12-region composite spot cash price increased only 2¢/MMbtu. "The rally in the NYMEX futures contract was underscored by a lower-than-consensus (although at the low-end of our forecasted range) natural gas storage injection figure along with the sharp increase in the crude complex. Also, warmer-than-normal weather should blanket much of the country during the early part of this week although temperatures are then expected to cool down at midweek," Morris reported.

In London, the August IPE contract for North Sea Brent crude increased 11¢ to $71.74/bbl. SGG analysts said $70/bbl should now become the new short-term floor for North Sea Brent crude. Meanwhile, the July gas oil contract gained $4.50 to $623.50/tonne.

The average price for OPEC's basket of 11 reference crudes escalated by 65¢ to $67.39/bbl on June 15. So for this year, OPEC's basket price has averaged $59.03/bbl, compared with an average price of $61.08/bbl for all of 2006.

Contact Sam Fletcher at samf@ogjonline.com.

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