Sam FletcherOGJ Senior Writer
HOUSTON, Oct. 11 -- Oil futures prices fell again in New York and London markets as the built-in war premium continued to unravel Thursday, even as the US Congress passed a resolution giving President George W. Bush authority for military operations against Iraq.
Traders apparently believe it is becoming increasingly difficult for the US to take such action, since Iraq has agreed to readmit weapons inspectors, analysts said.
Recent production trends among members of the Organization of Petroleum Exporting Countries seem to confirm the general perception of a war premium as part of current oil prices, said Tyler Dann, a Houston-based analysts with Banc of America Securities LLC, in a special report issued Wednesday. "OPEC production volumes have remained relatively low in absolute terms since April," he said. "Production levels this low relative to crude oil prices are unusual but perhaps appropriate, given statements made from within the organization that there remains $5/bbl risk premium imbedded in the oil price."
However, Dann said, "Based on our analysis, the war premium is now around $1-3/bbl and is becoming increasingly justified by inventory fundamentals, particularly in the US market."
He said, "While OPEC is producing 2.8 million b/d above their stated quotas, the group is still producing 2.1 million b/d less than they did in January 2001, over which time global oil demand has only declined by roughly 300,000 b/d, or 0.4%. Over this time period, OPEC has given up approximately 11% of their market share to non-OPEC producers."
Meanwhile, he said, benchmark crude prices continue to defy gravity. The price for benchmark West Texas Intermediate crude "has risen by 49% since the beginning of 2002. Brent crude also has risen by 47%, not quite keeping pace with the US benchmark, allowing for a widened WTI-Brent spread (now at $1.33/bbl). We see several reasons for the strength in crude oil markets as they stand right now."
The November and December contracts for benchmark US light, sweet crudes each lost 38¢ Thursday to $28.97/bbl and $29.07/bbl, respectively, on the New York Mercantile Exchange. Unleaded gasoline for November delivery fell 1.58¢ to 80.46¢/gal, while heating oil for the same month declined 1.12¢ to 78.3¢/gal.
The November natural gas position lost 9¢ to $3.83/Mcf Thursday on NYMEX. Analysts from Enerfax Daily blamed "a larger-than-expected weekly (gas) storage report" by the US Energy Information Administration. "But a forecast for a mid-October cold snap next week kept prices somewhat stable and prevented traders from unloading more length ahead of the weekend, coupled with concerns about continued outages from Hurricane Lili," they said. "With cold weather coming, nobody wanted to get in front and sell this market with any volume."
In London, the November contract for North Sea Brent oil dropped 39¢ to $27.74/bbl on the International Petroleum Exchange. The November natural gas contract declined by 0.6¢ to the equivalent of $3.21/Mcf on the IPE.
The average price for OPEC's basket of seven benchmark crudes lost 34¢ to $27.57/bbl Thursday.
Contact Sam Fletcher at [email protected]
