Sam Fletcher
Senior Writer
HOUSTON, Sept. 11 -- Energy prices continued to fall Sept. 8, with crude prices down 4% during an abbreviated week of trading on the New York market after the Sept. 4 Labor Day holiday.
"The end of the summer driving season along with a lull in geopolitical tensions weighed on crude oil prices," said Robert S. Morris, Banc of America Securities LLC, New York. "The focus for the crude complex has now turned from gasoline to heating oil; however, the winter is still 2 months away and heating oil inventories along the East Coast are at record-high levels."
The latest government report last week on US inventories "was viewed as bearish despite a larger-than-anticipated draw in crude inventories as distillate stocks built much more than expected," Morris said. "Also, BP [PLC] announced that Prudhoe Bay production should be fully restored by the end of October or much earlier than previously thought."
Morris said: "Along the geopolitical front, although a UN Security Council resolution had previously warned Iran about sanctions if it continued its uranium enrichment program, with the passing of the Aug. 31 deadline, the US, Europe, and China are now at odds over the extent and timing of any sanctions. Thus, the US has favored a graduated introduction of sanctions against Iran. Therefore, the 'cat-and-mouse' game between Tehran and the US is likely to continue for some time with no increase in concern regarding a potential interruption in exports from Iran should they retaliate against any imposed sanctions."
OPEC takes no action
As expected, members of the Organization of the Petroleum Exporting Countries made no changes in their official production quotas during their brief meeting Sept. 11 in Vienna.
"The topic of the day is clearly the determination of a price floor, below which OPEC should cut its production," said Frederic Lasserre, head of commodities research at the Societe Generale (SG) corporate investment-banking group, before the OPEC meeting wrapped up. "Indeed, the latest comments from key members indicate the organization is more worried by the short-term prospects than by the medium-term ones. For instance, the Saudi oil minister confirms 2007 oil demand prospects remain very positive despite the expected slowdown in the US and world economic growth while the OPEC President had to remind [members] the organization does not have any official floor to defend," he said.
Lasserre said: "Since OPEC has officially abandoned any official price band, the debate on the floor has been useless as the market has been more or less a one-way market. Over the last 2 years, the key concern was more the price level [that] would damage the world economy. From time to time, isolated comments from some members indicated that this floor was more or less 'around $50/bbl' (based on the OPEC basket which is trading now at a discount of $2.70/bbl to Brent ICE). At that time, SG agreed this level would be appropriate to both finance future production without damaging demand."
OPEC said it would reassess market conditions at its Dec. 14 meeting in Nigeria.
Energy prices
The October contract for benchmark US light, sweet crudes lost $1.07 to $66.25/bbl Sept. 8 on the New York Mercantile Exchange. The November contract dropped $1.12 to $67.38/bbl. Heating oil for October delivery declined by 4.44¢ to $1.84/gal on NYMEX. Unleaded gasoline for the same month was down by 3.26¢ to $1.61/gal.
The October natural gas contract slipped by 4.3¢ to $5.68/MMbtu on NYMEX. "Natural gas prices followed oil prices lower last week due to mild weather, particularly along the East Coast with cooling effect from the remnants of Hurricane Ernesto, and a larger-than-consensus storage injection figure," Morris said. "Also, the peak of the Atlantic Basin hurricane season has yet to yield any real threat to Gulf of Mexico production."
In London, the October IPE contract for North Sea Brent crude dropped $1.20 to $65.33/bbl. The September contract for gas oil lost $6 to $595.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes declined by 62¢ to $62.12/bbl on Sept. 8. So far this year, OPEC's basket price has averaged $63.18/bbl.
Contact Sam Fletcher at [email protected].
