Sam Fletcher
OGJ Senior Writer
HOUSTON, Oct. 23 -- Energy futures prices declined again Tuesday as traders continued to chip away at the perceived "war premium" on oil in New York and London markets, amid signals that US officials are softening their opposition to Saddam Hussein retaining power in Iraq.
The November contract for benchmark US sweet, light crudes dropped 44¢ to $27.92/bbl Tuesday on the New York Mercantile Exchange, down from an Oct. 1 high of $30.83/bbl. The December position lost 27¢ Tuesday to $28.07/bbl. The war premium on oil because of the risk of disruptions to Middle East oil supplies previously has been estimated at $1-5/bbl.
Unleaded gasoline for November delivery fell 1.18¢ to 79.85¢/gal on NYMEX. Heating oil for the same month was down 0.51¢ to 75.78¢/gal.
The November natural gas contract lost 4.7¢ to $4.11/Mcf, "with traders selling off the morning's short covering rally," said analysts at Enerfax Daily. "Fund buying came early in the session, followed by a surge of trade and locals selling as some forecasts moderated calls for cold weather over much of the nation for the next 2 weeks. The market dropped for most of the day, but rose somewhat right before the close."
After the close of trading Tuesday, the American Petroleum Institute reported US oil inventories jumped by 4.9 million bbl last week to 287.6 million bbl total. US distillates stocks increased by 1.4 million bbl to 125.4 million bbl. However, US gasoline stocks fell by 2.9 million bbl to 197.2 million bbl.
"With the US petroleum system still recovering from the effects of (Hurricane) Lili, the API data showed diametrically opposed inventory movements in crude and refined products for the second week running. Total crude and products increased by 3.5 million bbl but still remain 33.6 million bbl below last year's levels," Matthew Warburton at UBS Warburg LLC, New York, reported Wednesday.
He noted US oil imports rose by 1.7 million b/d to 9.9 million b/d last week, "the highest weekly level since April, partially reflecting clearance of the (Louisiana Offshore Oil Port) backlog" resulting from Tropical Storm Isidore and Hurricane Lili. "With imports likely to remain around current levels due to the impending arrival of Russian and North Sea cargoes compounded by rising OPEC (Organization of Petroleum Exporting Countries) and Iraqi exports, we would expect crude inventories to continue to increase even if refinery runs recover further," said Warburton.
The draw down of gasoline inventories last week, he said, "reflects the inherent lags in the product distribution system following the refinery disruptions in (Petroleum Administration for Defense District 3 along the Gulf Coast) and seasonal maintenance. Refinery gasoline yields continue to be unseasonably high, driven by the abnormal economic signals from higher gasoline crack spreads relative to heating oil spreads."
In London, the December contract for North Sea Brent oil declined 16¢ to $26.43/bbl on the International Petroleum Exchange. Brokers said that market's sentiment is markedly bearish in expectation that the US-Iraq conflict will be settled without military action. The November natural gas contract inched up 0.6¢ to the equivalent of $3.53/Mcf on the IPE.
The average price for OPEC's basket of seven benchmark crudes dropped 57¢ to the equivalent of $26.62/bbl Tuesday.
