Sam Fletcher
Senior Writer
HOUSTON, Sept. 20 -- The front-month crude futures price fell to a 6-month low Sept. 19 on the New York market immediately after US President George W. Bush in a speech to the United Nations appeared to back away from trade sanctions against Iran over its uranium enrichment program.
However, Kevin Book at Friedman, Billings, Ramsey Group Inc. (FBR), Arlington, Va., cautioned against "relying exclusively on the public words of a national leader trying to curry favor with a room full of diplomats; we saw a much stronger tone [against Iran's fledgling nuclear program] articulated by the Department of State during a Senate hearing that took place immediately prior to the president's UN address."
Iranian President Mahmoud Ahmadinejad "may have seemed less inflammatory" in his response to Bush's speech. "But it certainly was not suggestive of a truce," Book said. "If anything, we think Ahmadinejad's tone reflected an attempt to broaden the coalition of international supporters for his country's progress toward becoming a nuclear power."
As a result, Book said: "It is too soon to dismiss the Iran 'risk premium' to crude oil. We agree that odds of an Iran-imposed embargo on its export oil appear to remain low (the US may be addicted to using oil, but Iran's government is addicted to selling it, and Ahmadinejad will not win greater support from Supreme Leader Ali Khamenei by wrecking Iran's economy). By the same token, we see several potential flash points for sanctions that could emerge from either multilateral (UN) negotiations or. . .the US Congress, and either one could prompt an escalation of Iranian rhetoric."
In a separate report, Jacques Rousseau, senior FBR energy analyst, said falling prices should raise consumption forecasts, while supply is likely to decline in coming weeks because of lower imports and refinery maintenance.
"FBR's average US refining margin has declined from a high of $23.50/bbl on Aug. 2 to $7.40/bbl as of Sept. 19 (the 2003-05 average was $10.70/bbl) due to rising inventories of refined products, which have increased by 9% since the beginning of May. However, it is important to note that the inventory gains have been driven by higher supply and not because demand was weak," he said.
Traders were expecting a continued increase in US fuel stockpiles. On Sept. 20, the US Energy Information Administration reported commercial US crude inventories fell by 2.8 million bbl to 324.9 million bbl during the week ended Sept. 15. Gasoline stocks increased by 600,000 bbl to 207.6 million bbl during the same period. Distillate fuel inventories jumped by 4.1 million bbl to 148.7 million bbl.
Imports of crude into the US were relatively unchanged at 10.6 million b/d. Input of crude into US refineries declined by 65,000 b/d to 16 million b/d, with refineries operating at 93.4% of capacity. Gasoline production rose to 9.2 million b/d while distillate fuel production decreased to 4.4 million b/d.
Energy prices
The October contract for US benchmark US light, sweet crudes fell by $2.14 to $61.66 bbl, the lowest closing since Mar. 21 and the largest single-day price drop since May 15 for a front-month contract on the New York Mercantile Exchange. That contract expires with the Sept. 20 session. The November contract lost $2.28 to $62.17/bbl. On the US spot market, West Texas Intermediate was down by $2.14 to $61.67/bbl. Unleaded gasoline for October delivery dropped 7.58¢ to $1.50/gal on NYMEX. Heating oil for the same month declined by 3.41¢ to $1.69/gal.
The October natural gas contract gained 6.4¢ to $5.01/MMbtu, wiping out the previous session's loss.
In London, the November IPE contract for North Sea Brent crude dropped $1.88 to $62.17/bbl. However, October gas oil gained $8 to $562/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes increased for the second consecutive session, up by 18¢ to $58.85/bbl on Sept. 19.
Contact Sam Fletcher at [email protected].
