Sam Fletcher
Senior Writer
HOUSTON, June 24 -- Futures prices for oil and petroleum products retreated Monday, apparently in reaction to reports that exports of Iraqi crude, stored at Mediterranean port of Ceyhan, Turkey, began Sunday.
Analysts reported prices dropped in a volatile trading session "as investors sold into the early price rally that was fueled by explosions on Iraqi pipelines and a further reduction to Iraqi oil production forecasts."
The pending export of Iraqi oil placed in storage prior to the invasion of Iraq by the US-led coalition was essentially "old news," however, after Iraq's State Oil Marketing Organization earlier this month awarded oil export contracts of 2 million bbl each to Total SA and ChevronTexaco Corp. for the US market and a total of 5.5 million bbl to Repsol-YPF SA, Cepsa SA, ENI SPA, and a Turkish marketing firm, Turpas, with loading dates of June 17-30 (OGJ Online, June 12, 2003).
Iraq
Iraq's oil production currently is projected at 300,000-400,000 b/d for the second quarter of this year, less that what was required to meet that country's prewar domestic demand of roughly 500,000 b/d (OGJ Online, June 23, 2003).
However, analysts at Jefferies & Co. Inc. in New York and New Jersey said Tuesday, "There are many who are fearful that Iraq will return to prewar production levels (of 2.5 million b/d) very quickly and ramp up production to significantly higher levels over the ensuing 12-24 months."
They said, "In our opinion, pre-war production will likely not be seen until about yearend, and additional production gains from Iraq will take more time and more capital than many are forecasting. Our best estimate is it will be at least late 2004 before Iraqi oil production can be sustained at or above prior peaks of 3.5 million b/d."
Jefferies analysts reported, "The last several months have highlighted the risks behind US reliance on unfriendly and unstable countries for its crude oil needs. We believe crude oil prices will include a 'supply disruption' premium for at least the next several quarters, particularly give the relatively low level of worldwide inventory levels and continued political uncertainty."
Venezuela
Officials at Petroleos de Venezuela SA, the national oil company, reported Monday they exported the first shipment of reformulated gasoline to the US since a 63-day strike disrupted that country's oil production in December 2002 through early February 2003. The 316,000 bbl shipment of reformulated gasoline was from PDVSA's 940,000 b/d Paraguana Refining Complex in northwestern Venezuela. Company officials said they plan five shipments of unleaded gasoline, averaging 300,000 bbl each or 1.5 million bbl total, to the US during July. In addition, the Paraguana refinery is scheduled to supply 100,000 b/d of leaded and 45,000 b/d of unleaded gasoline to the Venezuela market.
"Although 'peace' has been restored (after most businesses in Venezuela called off the general strike in early February), many experienced oil workers have been fired, and oil production has been a bit erratic," Jefferies analysts said. "The combination of inexperienced workers and possible damage to some wells that were shutdown (during the strike) will likely hinder Venezuela's production for the foreseeable future.
"In fact, there have been recent indications that wells are producing a higher water cut in the Lake Maracaibo region, which potentially has implications for Venezuela's sustainable production level."
General outlook
"We are in the midst of an energy supply crisis which should fuel a sharp rise in drilling activity, beginning by late 2003 and extending for several years as the US attempts to reduce its dependence on foreign oil and meet domestic gas demand," said Jefferies analysts.
Meanwhile, OPEC's move toward more frequent meetings in April, June, and July is "additional evidence the cartel will remain cohesive in its attempts to avoid a material price drop," the analysts said. "Current fundamentals, including low inventory levels, OPEC cohesiveness, and the difficulties non-OPEC producers are experiencing (in) growing production, support crude oil prices in the mid-$20s" through 2004, they said.
They are maintaining their current forecasts for benchmark US light, sweet crudes at $29/bbl for 2003 and $25/bbl in 2004.
Energy prices
The August contract for US benchmark crudes dropped 31¢ to $29.17/bbl Monday on the New York Mercantile Exchange, while the September position lost 20¢ to $28.78/bbl. Unleaded gasoline for July delivery fell 1.06¢ to 84.09¢/gal. Heating oil for the same month was down 0.63¢ to 75.04¢/gal. Monday's falling prices dented but did not destroy gains from Friday's rally.
However, the July natural gas contract increased 5.8¢ to $5.86/Mcf on NYMEX. Analysts at Enerfax Daily reported "an early rally (Monday) on higher cash prices and hot forecasts for the Northeast and Midwest this week was trimmed (from the day's peak of $6.12/Mcf) by late profit taking." The July gas contract expires Thursday.
In London, the August contract for North Sea Brent oil dipped by 9¢ to $26.93/bbl Monday on the International Petroleum Exchange. The July natural gas contract advanced by 1.2¢ to the equivalent of $2.88/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes increased by 20¢ to $26.54/bbl Monday.
Contact Sam Fletcher at [email protected]
