By OGJ editors
HOUSTON, Oct. 22 -- Energy futures prices plummeted Monday after two White House officials indicated on weekend news programs a shift in US policy away from ousting Saddam Hussein as Iraq's leader.
US Secretary of State Colin Powell said on a NBC news program Sunday that Hussein might be allowed to remain in power if he agrees to give up armaments capable of mass destruction. Condoleezza Rice, national security adviser to President George W. Bush, said much the same thing on a subsequent CNN program.
Those statements were interpreted as "conciliatory" by traders who Monday cut deeply into the so-called "war premium" added to oil market prices by the perceived risk of military action that could disrupt supplies of Middle East crude. The amount of that premium has been variously estimated at $1-5/bbl.
However, analysts said there is little chance of a total price collapse with inventories at low levels in the face of rising demand.
The November contract for US benchmark sweet, light crudes plunged $1.24 to $28.36/bbl Monday on the New York Mercantile Exchange, while the December position fell $1.26 to $28.34/bbl. Unleaded gasoline for November delivery tumbled 4.14¢ to 81.03¢/gal. Heating oil for the same month lost 4.06¢ to 76.29¢/gal on NYMEX.
Even the November natural gas position was pulled down 8.2¢ to $4.16/Mcf in Monday's sell-off. "The favorite market strategy appears to be selling down rallies, with the tumbling crude oil market helping set the pace," analysts at Enerfax Daily said Tuesday.
"Weather remains the market's driving force. With colder weather forecasts seen across the nation for the next 2 weeks, don't look for the market to fall under $4(/Mcf) any time soon," they advised. "But will the bullish short-term fundamentals outweigh what appears to be a technical failure? We may find the answer today. Despite the cold weather forecast, with petroleum products under pressure, it is difficult to maintain those higher prices." The November gas contract expires Oct. 29.
Meanwhile on the spot market, natural gas for next-day delivery across the US and Canada generally increased by 5-15¢/Mcf Monday, Enerfax analysts reported. At the Henry hub, gas for next-day delivery gained 12¢ to $4.23/Mcf.
In London, futures prices for North Sea Brent oil also plunged on the International Petroleum Exchange, as traders sold out long positions in reaction to Powell's comments. The December Brent contract dropped $1.25 to $26.59/bbl. Brokers said that sell-off is likely to continue before prices stabilize.
The November natural gas contract lost 3¢ to the equivalent of $3.51/Mcf on the IPE.
The average price of the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes fell 81¢ to $27.19/bbl Monday.
Earlier at a conference on Saudi Arabia's economy in Riyadh, OPEC Conference Pres.Rilwanu Lukman defended the need for "appropriate" oil prices. "The simple truth is that low prices are incompatible with the levels of investments required to ensure secure and adequate supplies envisaged in the next 2 decades," he said. "Huge capital outlay will be required to create the capacity to supply the world with the level of production" necessary to supply projected world demand.
Lukman, who also serves as adviser on petroleum and energy matters to Nigeria's president, said global oil demand is expected to grow 40% to more than 106 million b/d by 2020 from 76 million b/d currently.
He also said that non-OPEC production is expected to grow steadily for most of this decade, with OPEC making only marginal increases in its production.
"The second decade of the century will, however, witness a very dramatic shift in sources of supplies, as non-OPEC production reaches peak levels," said Lukman. OPEC members control nearly four-fifths of the world's proven oil reserves and are well placed to meet the lion's share of total demand, he said.
