MARKET WATCH: Bhutto assassination raises political premium for oil

Sam Fletcher
Senior Writer

HOUSTON, Dec. 27 -- Energy prices initially jumped Dec. 27 as the assassination of former Pakistan Prime Minister Benazir Bhutto, the opposition leader in that country, ramped up market concerns about increased instability in the Middle East.

Bhutto and at least 20 others were killed by a suicide bomber after she addressed a campaign rally. Her supporters then took to the streets, attacking police and chanting slogans against Pakistan President Pervez Musharraf.

Meanwhile, as traders returned from their Christmas break, crude futures prices rose 2% in the New York market Dec. 26 when the Turkish military said it would continue attacks against Kurdish rebels across the boarder into northern Iraq.

"The positive momentum is starting to intensify and was also helped by a weakening of the dollar index. However on a dollar-index adjusted basis, crude oil is already printing a new historic high," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "Apart from technical momentum, the increased military activity on the Iraqi-Turkey border is increasing the risk premium, and we are increasingly concerned about the recent deterioration in the Nigerian Delta. It will not be long before either a new attack on an oil installation or a strong gun battle between militants and the military occurs in Nigeria."

US inventories
The Energy Information Administration reported Dec. 27 commercial US crude inventories dropped 3.3 million bbl to 293.6 million bbl in the week ended Dec. 21. Gasoline stocks increased by 700,000 bbl to 205.9 million bbl during the same period, while distillate fuel fell 2.8 million bbl to 126.6 million bbl. Propane and propylene inventories declined by 1.8 million bbl to 56.1 million bbl last week.

Imports of crude into the US increased by 694,000 b/d to 9.8 million b/d in the same period. Input of crude into US refineries dipped by 22,000 b/d to 15.2 million b/d, with units operating at 88.1% of capacity. Gasoline production declined to 9 million b/d while distillate fuel production dropped to 4.3 million b/d.

Energy prices
The February crude contract for US light, sweet crudes jumped by $1.84 to $95.97/bbl Dec. 26 on the New York Mercantile Exchange. The March contract climbed $1.70 to $95.44/bbl. The January heating oil contract increased 4.65¢ to $2.64/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) escalated by 6.86¢ to $2.45/gal.

The January natural gas contract gained 2.1¢ to $7.05/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 1.5¢ to $7.02/MMbtu.

In London, the February IPE contract for North Sea Brent rose $1.24 to $93.91/bbl. Gas oil for January gained $13 to $843/tonne.

The average price of the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes gained $1.57 to $89.54/bbl on Dec. 27. So far this year, OPEC's basket price has averaged $68.85/bbl, up from an average $61.08/bbl for all of 2006.

Contact Sam Fletcher at samf@ogjonline.com.

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