MARKET WATCH: Crude, product prices rebound

Sam Fletcher
Senior Writer

HOUSTON, June 12 -- Weekend news that Saudi Arabia is cutting oil shipments to Asia for a ninth straight month caused crude and petroleum products prices to recover June 11 some of their losses from profit taking during the previous session.

Saudi Arabia officials reiterated they would cut (10% below contracted volumes) supplies of Arab Light and Arab Heavy crude to refiners in Japan, China, and South Korea. The Organization of Petroleum Exporting Countries earlier pledged to cut production among the 10 affected members by 1.7 million b/d to support prices.

Crude futures prices on the New York market "rebounded to within the flat price range" of June 4, when the July contract for benchmark US light, sweet crudes closed at $66.21/bbl vs. $65.97/bbl on June 11.

"The main difference being that (on June 4) we were facing the prospect of a Category 5 hurricane heading towards the Arab Gulf whereas yesterday was lacking any significant development news," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Comparing market rallies on June 7 and June 11, Jakob said, "Both happened in a day lacking significant news development and both days the break of the resistance was followed by continued investment to hold a straight support line. We have to assume that as long as there were pockets deep enough to sponsor such break-and-support trading, it would be logical to try again the same play for a break of the $66.50/bbl resistance [on the New York market] and attempts at the highs of last week."

Analysts in the Houston offices of Raymond James & Associates reported oil prices retreated slightly in early trading on expectations that another rise in US gasoline inventories in a government report this week. "These expectations have modestly offset more bullish comments from the International Energy Agency, which has revised its global demand estimate upward," the analysts said.

IEA revised upwards its estimates of global demand for oil products, by 250,000 b/d to 84.5 million b/d for 2006 and by 420,000 b/d to 86.1 million b/d for 2007. It also reported that world supplies of crude in May fell by 565,000 b/d to 84.9 million b/d. IEA's estimate of non-OPEC production again was trimmed by 110,000 b/d to 50.2 million b/d, resulting in an overall increase of 900,000 b/d.

"Nigerian outages cut OPEC crude supply by 425,000 b/d to 30.1 million b/d," IEA reported. While OPEC's spare production capacity stands at 2.8 million b/d, IEA said, "Refining constraints imply much lower marketable spare capacity. Stronger demand raises 2007's 'call on OPEC crude and stock change' by 500,000 b/d, with the seasonal rise in the call outstripping OPEC capacity additions by the fourth quarter."

Royal Dutch Shell PLC began repairing a leak in a pipeline in Nigeria that has curtailed production of 77,000 b/d of crude since last month. There is no word yet when that production may be restored. In the interim, Nigerian militants said they will release to two governors from Niger Delta states the foreign hostages kidnapped in recent attacks on oil facilities.

Energy prices
The July contract for benchmark US crudes regained $1.21 to $65.97/bbl June 11 on the New York Mercantile Exchange. The August contract recouped $1.19 to $66.64. On the US spot market, West Texas Intermediate was up $1.21 to $65.97/bbl. Heating oil for July delivery gained 3.03¢ to $1.93/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) increased by 2.42¢ to $2.15/gal.

The July natural gas contract continued to fall, down 5.5¢ to $7.61/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 6¢ to $7.48/MMbtu.

In London, the July IPE contract for North Sea Brent crude increased by 96¢ to $69.56/bbl. Gas oil for June lost $6.75 to $599/tonne.

The average price for OPEC's basket of benchmark crudes fell by $1.08 to $65.04/bbl on June 11.

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