By Paula Dittrick
Senior Staff Writer
HOUSTON, Nov. 15 -- Crude oil futures on the New York Mercantile Exchange settled slightly higher Thursday based upon confirmation by the US government of a drop in crude supplies.
The move upward stemmed plunging oil prices from the previous day following Iraq's acceptance of a United Nation resolution calling for the return of weapons inspectors to that country. On Wednesday, crude prices descended to a 5-month low in New York and an 8-month low in London.
On Thursday, the December contract for benchmark US light, sweet crudes rose 10¢ to $25.29/bbl on the NYMEX, while the January contract declined by 2¢ to $24.46/bbl.
The US Energy Information Administration said crude inventories dropped 6.9 million bbl in the week ended Nov. 8, confirming the American Petroleum Institute's Tuesday report that the weekly inventory had dropped 7.2 million bbl.
Traders and analysts said the market had paused to await Iraq's next move. Meanwhile, a team of disarmament experts was slated Friday to leave for Iraq, which has until Dec. 8 to supply the UN with a list of its weapons.
J.P. Morgan Securities Inc. analyst Paul Horsnell in London said the overall oil market apparently no longer expects war in Iraq, but he still remains concerned.
"In all, given the wording of Iraq's acceptance, we would put the risks of war now as being a littler higher than we did last week. It also follows that we do not believe that the risk of the Iraqi situation are being priced in to the market. Current prices do not adequately represent the fundamentals, let alone any geopolitical concerns," he said in a research note.
Horsnell expects a rebound in oil prices "simply because they have become far too low for justification on fundamental grounds," and because market sentiment seems to have gotten "carried away in terms of the scale of the perceived market weakness."
Horsnell perceives a risk that oil prices could "hurtle back towards $30 bbl," given the right "coincidence of factors." Meanwhile, the Boston-based Energy Security Analysis Inc. agrees.
Sarah Emerson, ESAI managing director, told OGJ that, "My best guess, and it is really just a guess, is that military conflict is inevitable . . . not in 2002, but probably in the first half of 2003 . . . absent any military surprises or other fundamental surprises, this leads us to a $30 plus barrel—not a $40 barrel, although don't discount the short-lived speculative spikes when word of war hits the market."
In a briefing written Monday, Emerson said it is possible that President Saddam Hussein could make it through February without being found in violation of the Security Council's resolution.
"A clever mixture on Iraq's part of cooperation and deception could suffice to keep the hammer from falling for months. Certainly, Washington is going to try to push the envelope—urging inspectors to be aggressive and providing the inspection team with intelligence that leads to suspect (weapons of mass destruction) sites," Emerson said.
Unleaded gasoline for December delivery increased 1.22¢ to 69.76¢/gal. Heating oil for the same month climbed 0.44¢ to 67.69¢/gal.
The December natural gas contract slipped 0.8¢ to $3.87/Mcf Thursday on NYMEX. EIA figures showed US gas inventories fell by 49 bcf for the week ended Nov. 8. That compared with an injection of 35 bcf for the same time last year. Total US gas inventories are 3.097 tcf, 90 bcf lower than for the same time last year but still 73 bcf above the 5-year average.
Traders said natural gas future prices dropped because the weather outlook calls for mild weather next week and also because they anticipate a lower inventory draw in the next EIA report.
In London, the December contract for North Sea Brent oil rose 11¢/ to $22.81/bbl on the International Petroleum Exchange. The December natural gas contract slipped by 4¢ to the equivalent of $3.73/Mcf on IPE.
OPEC's basket of seven benchmark crudes rose 62¢ to $23.24/bbl Thursday.
Contact Paula Dittrick at [email protected]
