Sam Fletcher
Senior Writer
HOUSTON, May 31 -- Energy futures prices continued to climb May 30 as the New York market reopened after the long Memorial Day weekend.
"Refining capability and geopolitical events continue to be the catalyst behind oil price movements," said J. Marshall Adkins in the Houston office of Raymond James & Associates Inc. "Nigeria may be raising output by approximately 160,000 b/d (approximately 7% of Nigeria's current production) as the country brings back facilities that were down due to militant attacks." Moreover, the Organization of Petroleum Exporting Countries "has insinuated that it will not be cutting production when it meets next week, due to $70 oil."
Another market factor likely will be the scheduled June 1 meeting of United Nations, German, and Iranian officials to discuss incentives for Iran to halt nuclear research, Adkins said. Iran has said it will solicit bids from domestic and international firms within the next 2 months for construction of two 1,000 Mw nuclear reactors.
Supply issues
"Crude oil prices have surprised to the upside once again," said Jacques Rousseau, senior energy analyst at Friedman, Billings, Ramsey Group Inc., Arlington, Va. But gains this year have resulted mainly from supply issues rather than demand strength as in prior years.
"While this raises the risk of a downward correction (when production returns to normal), given the minimal increases to production capacity in both the upstream and the downstream, it is difficult to envision a major drop to prices this year," he said. "Additionally, OPEC appears willing to defend a price in the $60/bbl (West Texas Intermediate) range, and geopolitical risks are unlikely to abate."
Although some price softening is expected "in the near term due to seasonally rising inventories, especially US gasoline," Friedman, Billings, Ramsey is increasing its crude price forecasts to $66/bbl from $59/bbl for 2006 and to $65/bbl from $54/bbl in 2007. Its 2008-10 outlook is for an average price of $60/bbl.
"Next decade, we expect rising capacity coupled with increases to unconventional resources and renewable fuels to lower prices (our long term forecast remains $50/bbl)," said Rousseau.
Analysts at Petromatrix GMBH in Zug, Switzerland, reported China and India in April registered almost no growth in demand for crude compared with the same period last year. "With the high international price of crude oil and subsidized internal prices, both countries have had to reduce their crude purchases as the internal refinery margins are heavily in the red. China has since then increased its domestic prices, which will go some way in supporting the refinery margins but more will be needed as long as crude stays at the current levels," the analysts said.
Energy prices
The July contract for benchmark US light, sweet crudes gained 66¢ to $72.03/bbl May 30 on the New York Mercantile Exchange. The August contract escalated by 71¢ to $72.87/bbl. On the US spot market, WTI at Cushing, Okla., was up by 66¢ to $72.03/bbl. Heating oil for June delivery climbed by 2.34¢ to $2/gal on NYMEX. Gasoline for the same month increased by 1.31¢ to $2.15/gal.
However, the July natural gas contract lost 3.1¢ to $6.12/MMbtu. "The [gas] market continues to be caught between a forecast for a warmer June across most of the nation and record high storage levels for this time of year," said analysts at Enerfax Daily.
In London, the July IPE contract for North Sea Brent crude increased by 46¢ to $71.05/bbl. Gas oil for June delivery rose by $5.75 to $637/tonne.
The average price for OPEC's basket of 11 benchmark crudes gained 29¢ to $65.41/bbl on May 30.
Contact Sam Fletcher at [email protected].
