Market watch: Oil prices firm as US presses UN for harder stand on Iraq

Oct. 24, 2002
Oil futures prices firmed Wednesday for the first time in four trading sessions as the US called for a meeting of the United Nations Security Council.

By OGJ editors

HOUSTON, Oct. 24 -- Oil futures prices firmed Wednesday for the first time in four trading sessions as the US called for a meeting of the United Nations Security Council on a resolution threatening military action if Iraq fails to cooperate fully with weapons inspectors.

Russia and France previously refused to incorporate any threat in a resolution aimed at Iraq. Oil companies in both of those countries have vested interests in Iraq's oil operations.

The so-called "war premium" on near-month futures contracts for oil has eroded by roughly $2/bbl in recent weeks as the threat of military action by the US against Iraq appeared to diminish. However, analysts said there is still enough nervousness in markets for oil and petroleum products prices to rebound with any suggestion of a Middle East conflict.

Meanwhile, at their meeting Saturday in Muscat, Oman, Arab members of the Gulf Cooperation Council are scheduled to discuss implementation of a new emergency oil strategy to mitigate the risk of world fuel shortages in either war or peace. That plan to establish a unified mechanism through which GCC would guarantee oil supplies to dependent countries was discussed by deputy oil ministers Thursday in Muscat. Oil ministers will discuss it Saturday, and any proposal they make likely would be ratified at a December meeting of GCC heads of state in Doha, Qatar.

Involved in those discussions are Saudi Arabia, Kuwait, Qatar, and the UAE—all members of the Organization of Petroleum Exporting Countries; and non-OPEC producers Oman and Bahrain.

The new near-month December contract gained 11¢ to $28.18/bbl Wednesday on the New York Mercantile Exchange. The January position was up 8¢ to $27.78/bbl. Unleaded gasoline for November delivery escalated by 1.55¢ to 81.4¢/gal, but heating oil for the same month lost 0.11¢ to 75.67¢/gal.

The November natural gas contract jumped by 15¢ to $4.26/Mcf on NYMEX, "pushed upward by an on-again bullish, sustained cold weather forecast for the (US) Midwest and Northeast," said Enerfax Daily analysts Thursday. "Weather is so much in control of the market right now that any small adjustment in forecasts from time to time jerk prices up or down. Incremental demand in the Northeast is up substantially."

Robert Morris at Salomon Smith Barney Inc., New York, reported temperatures across the US last week were generally 57% lower than the previous week, down 17% from the same period a year ago, and nearly 15% below the 10-year average.

Meanwhile, the US Energy Information Administration reported 33 bcf of gas was injected into US underground storage last week. That's down from 48 bcf the previous week but up from 32 bcf the same time a year ago. US gas storage totals 3.16 tcf, equating to surpluses of 61 bcf compared with a year ago and 219 bcf more than the 5-year average.

In London, the December contract for North Sea Brent oil gained 8¢ to $26.51/bbl on the International Petroleum Exchange. The November natural gas contract rose 4.1¢ to the equivalent of $3.57/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes was unchanged at $26.62/bbl Wednesday.