Market Journal
Crude prices fluctuate in $12/bbl range

Sam Fletcher
Senior Writer
Crude prices fluctuated in a $12/bbl range July 7-11 on the New York Mercantile Exchange, falling sharply in the first two sessions as the US dollar strengthened then rebounding in the last two sessions to almost make up that loss.
The front-month crude contract lost $9.29/ bbl through July 7-8 as the US dollar strengthened, then inched up just 1¢/bbl on July 9 before climbing $9.03/bbl over the July 10-11 sessions amid worries of possible supply disruptions. The August contract for benchmark US light, sweet crudes fell July 7 for the first time in four sessions after Iran's foreign minister hinted at conciliation over that country's nuclear program. It then dropped $5.37 to $136.04/bbl July 8, the biggest 1-day loss since Mar. 19, as the strengthening dollar and other economic factors triggered a sell-off of commodities.
However, losses stopped July 9 as Iran test-fired nine medium and long-range missiles in the Persian Gulf. A June exercise by Israel's air force earlier had triggered speculation of a possible attack on Iran's nuclear sites. The crude contract escalated $5.60 to $141.65/bbl July 10 on the New York Mercantile Exchange when Iran test-fired more missiles apparently in response to a warning from Secretary of State Condoleezza Rice that the US will defend Israel and other allies if attacked. A flurry of trading hiked the contract's price by $4/bbl in the last 30 minutes of the open session. The Organization of Petroleum Exporting Countries has warned it cannot replace the crude shortfall if Iran is attacked and its production and exports are disrupted.
Crude futures jumped to a record $147.27/bbl in intraday trading July 11, before closing at $145.08/bbl, up $3.43 for the day but down 21¢ for the week. It appeared headed for another loss in early trading July 14 as the dollar appreciated vs. the euro after the US Treasury revealed plans to provide direct loans to the Federal Home Loan Mortgage Corp. and Federal National Mortgage Assoc. to shore up the value of home loans they hold.

Factors affecting prices
Workers went on strike July 14 at 33 of Petroleo Brasileiro SA's 42 offshore platforms in Brazil's Campos basin. That accounts for more than 80% of Brazil's total output of 1.8 million b/d. Workers vowed to resist Petrobras' contingency plan to maintain production. At issue is a 10-year quest by workers for Petrobras to count the day that crews leave the offshore platforms as a working day.
Analysts in the Houston office of Raymond James & Associates Inc. said, "The stronger dollar has offset the added geopolitical risk premium related to the 5-day strike of Petrobras employees in Brazil. We expect that this prospective supply disruption, as well as ongoing instability in Nigeria and Iran, will continue to add volatility to short-term oil prices."
Olivier Jakob at Petromatrix, Zug, Switzerland, said, "Iran has been trying to do as good a public relations exercise as Israel and its 'Glorious Spartan' military exercise early in June." Jakob said: "Israel has been telling the world that maybe it has the logistical capacity of hitting Iran, and Iran has been telling the world that maybe it has the capacity to hit Israel." Discussions continued over a prenegotiation freeze period on the nuclear issue. "If it was not for the missile test, then any advance in the negotiations would have looked like Iran was giving in due to the Israeli threat," said Jakob. Meanwhile, photography experts said one photo of four Iranian missiles being fired was faked. There is speculation that Iran doctored the photo to cover up its failure to launch one of the missiles in that group.
In other news, President Hugo Chavez of Venezuela said oil prices could hit $300/bbl if ExxonMobil Corp. were to freeze Venezuelan assets again in the dispute over a nationalized oil project in that country. ExxonMobil earlier won a temporary court injunction freezing $12 billion in assets held by Petroleos de Venezuela SA. A London court later overturned that injunction, but Chavez said the US firm could seek further action against Venezuela.
Nigerian rebels ended a 2-week ceasefire July 12. Gunmen kidnapped two employees of Julius Berger Nigeria PLC, a unit of Bilfinger Berger AG, Germany's second largest builder, in Port Harcourt July 11.
Adam Sieminski, chief energy economist, Deutsche Bank, Washington, said, "Falling oil demand in the US and Europe is offsetting strength in China. But the continuing impact of economic gains in the other non-OECD Asian countries as well as the Middle East, and the 'rest of the world,' mean that oil demand remains strong."

(Online July 14, 2008; author's e-mail: samf@ogjonline.com)

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