MARKET WATCHSupply concerns buoy crude prices

Jan. 17, 2006
The February crude futures contract was priced above $65/bbl in early trading Jan. 17 on the New York Mercantile Exchange, fueled by Nigerian outages and uncertainty about Iran's nuclear program.

By OGJ editors
HOUSTON, Jan. 17 -- The February crude futures contract was priced above $65/bbl in early trading Jan. 17 on the New York Mercantile Exchange, fueled by Nigerian outages and uncertainty about Iran's nuclear program.

That market was closed Jan. 16 in observance of the Martin Luther King holiday in the US. Meanwhile, Royal Dutch Shell PLC declared force majeure after it shut in 106,000 b/d of Nigerian production and evacuated more than 300 workers from its facilities because of fighting between rebels and government troops in Nigeria's southern Niger Delta (OGJ Online, Jan. 16, 2005).

In other action, Russia and China rejected a proposal to call an emergency meeting of the International Atomic Energy Agency, the nuclear watchdog of the United Nations, for possible action against Iran over what are feared to be its efforts to develop a nuclear weapons program. Representatives from France, China, Russia, the UK, and the US met Jan. 16 in London to discuss that matter.

Front-month crude contracts on NYMEX averaged $59.45/bbl in December and escalated above $64/bbl in early January because of strong gasoline prices and continued concerns over crude supplies from Nigeria and Iran, the International Energy Agency reported Jan. 17 in Paris. "Refinery margins rebounded from early December lows, helped by gasoline strength as Atlantic Basin refineries headed into seasonal maintenance. This, together with high spot prices and forward [premiums] for crude and product prices suggests continued demand for higher inventory cover and a need to replenish stocks in the second quarter," it said.

In its latest report, IEA again lowered its estimate of crude supplies from producing nations outside of the Organization of Petroleum Exporting Countries, down by 90,000 b/d to 50.1 million b/d in 2005, unchanged from 2004. It also reduced its previous estimate of world oil demand for 2005, down by 90,000 b/d to 83.3 million b/d in 2005. "Global demand increased by some 1.3% in 2005 and should grow by 2.2% in 2006 as demand rebounds in the US and China," IEA reported.

It increased its call on OPEC crude supplies by 100,000 b/d to 28.6 million b/d, an increase of 200,000 b/d from 2005 levels.

The average price for OPEC's basket of 11 benchmark crudes increased by 55¢ to $57.71/bbl on Jan. 16.

In a separate report Jan. 17, analysts at Raymond James & Associates Inc. said the utilization rate among US land rigs is at a 24-year high, with demand outpacing the growing supply.

Data from the 52nd annual rig census by bit manufacturer Reed-Hycalog, a Grant Prideco company, "demonstrated further growth in the US land rig fleet to 1,813 units, up 77 rigs, or 4.4% since 2004," said Raymond James analysts "This represents fleet utilization levels of 95%, the highest since 1981."

They said, "The dramatic tightening supply-demand equation for rigs has pushed pricing up to replacement cost levels for the first time in over 20 years. Given the limited availability and timing to add new rigs to the market, we think the outlook for activity and pricing should remain very robust over at least the next couple of years, barring a meltdown in commodity prices."