Market watch: Oil, gasoline futures prices recover some of earlier loss

July 22, 2002
Oil and gasoline futures prices rebounded somewhat Friday, as traders again expressed concern about possibly tight gasoline supplies.

By OGJ editors

HOUSTON, July 22 -- Oil and gasoline futures prices rebounded somewhat Friday, as traders again expressed concern about possibly tight gasoline supplies.

Last week, overall, "crude oil prices edged higher for the second week in a row after a decline in US crude oil inventories was reported and Venezuela reiterated that it would not exceed its OPEC (production) quota levels, contradicting earlier reports that it would," Robert Morris at Salomon Smith Barney Inc. in New York, reported Monday.

"At the same time, fears that demand for crude oil and products would be tempered by the effects of the falling stock market were somewhat offset by renewed terrorists attacks in Israel," he said. Although the value of the stocks of oil and gas exploration and production companies generally declined last week, Morris said, "on average (those stocks) did not drop as much as the overall market, while natural gas prices were down slightly and crude oil prices were up slightly."

However, Matthew Warburton, a New York-based analyst with UBS Warburg LLC, also reported Monday, "Profit-taking in the later part of last week limited the net rise in crude prices ... to less than 50¢/bbl. The fact that product prices have once again lagged crude prices suggests that the upside from here is limited. Product demand is still not robust enough to drive prices substantially above the $24-28/bbl range."

Warburton noted, "Even with the profit-taking witnessed at the end of last week, given the higher expectation of the tightening (second half 2002) oil market, we expect the noncommercial traders to have essentially maintained their current net long position when the data is released on Friday." The net long position among noncommercial traders increased substantially last week to the highest level since early April, with increased oil prices earlier in the week, he said.

Unleaded gasoline for August delivery regained 0.51¢ to 83.86¢/gal Friday on the New York Mercantile Exchange after losing 1.49¢/gal Thursday on news that Phillips Petroleum Co. completed the restart of its 115,000 b/d refinery in Rodeo, Calif. That refinery had unexpectedly shut down for a week because of mechanical problems.

Meanwhile, Conoco Inc. secured a tentative agreement on a new labor contract with union officials Friday, averting a strike at the company's 240,000 b/d Lake Charles, La., refinery. The Paper, Allied-Industrial, Chemical and Energy Workers International Union, which represents workers at the refinery, will put the proposed deal to its members early this week, a Conoco spokesman said.

The August contract for benchmark US light, sweet crudes gained 16¢ to $27.83/bbl Friday on NYMEX, while the September contract advanced 18¢ to $27.84/bbl.

However, heating oil for August delivery dipped by 0.4¢ to 70.14¢/gal. Natural gas for the same month also lost 1¢ to $2.93/Mcf.

In London, the August contract for North Sea Brent oil gained 15¢ to $26.43/bbl on the International Petroleum Exchange. However, the August natural gas contract lost 1.9¢ to the equivalent of $1.97/Mcf.

Oil futures prices on the IPE rose as brokers covered their short positions based on perceptions of a tightening US gasoline market. That overrode indications by Venezuela's finance minister that the country might maximize its crude production next year, analysts reported.

However, in taking the oath of office Friday as Venezuela's new minister of energy and mines—the third person to hold that office since President Hugo Chavez was inaugurated in February 1999—Rafael Ramirez Carreoo said his country would continue its efforts as a founding member of the Organization of Petroleum Exporting Countries to help secure oil prices at a fair price of around $25/bbl. Ramirez succeeds Alvaro Silva Calderon, who was recently named as the secretary general of OPEC. Silva in turn succeeded Alí Rodríguez Araque, who was named president of Petroleos de Venezuela SA.

The average price for OPEC's basket of seven benchmark crudes increased by 5¢ Friday to $25.90/bbl. For the whole week, however, the OPEC basket price averaged $25.69/bbl, up 86¢ from the previous week.

So far this year the OPEC basket price has averaged $22.48/bbl, compared with an average price of $23.12/bbl for all of 2001.