Sam Fletcher
Senior Writer
HOUSTON, Oct. 15 -- The front-month crude contract climbed above $84/bbl for the first time ever in intraday trading Oct. 12 on the New York market amid another escalation of political tension in the Middle East.
Moreover, analysts with Raymond James & Associates Inc. in Houston reported Oct. 15, "Crude oil crossed $85/bbl for this first time ever this morning and is still hovering near record highs after the Organization of Petroleum Exporting Countries raised its forecast for oil demand in the fourth quarter by 100,000 b/d. Concerns about a supply interruption also boosted prices due to tensions between Turkey and Iraq. The Turkish parliament will vote this week on whether or not to allow its army to invade Northern Iraq and attack Kurdish rebels. These tensions, along with bullish inventory data, caused crude to jump over 3% last week."
Raymond James analysts said, "The oil bubble of 1982-2002 is gone not because of artificial supply constraints, but because strong demand has finally caught up to supply (non-OPEC and arguably OPEC as well). Global oil demand has held up very well in the face of record oil prices in the second half of 2007, and we believe that concerns of price-driven demand destruction are overblown." They said, "While there is always a latent risk that oil prices will overshoot on the upside and ultimately crimp demand, under current trends price equilibrium in the oil market should gradually move higher on a sustainable basis."
Robert S. Morris, Banc of America Securities LLC, New York, said, "US dollar weakness once again underpinned the rise in oil prices along with reports from both the US Energy Information Administration (EIA) and Paris-based International Energy Agency (IEA) pointing to tighter crude oil supplies in the fourth quarter. News of a possible Turkish incursion into northern Iraq also lent momentum to oil prices along with a government report showing that retail sales increased more than expected last month and therefore the economy may not be slowing as sharply as previously feared. Finally, although the weekly US crude plus product inventory report revealed an unexpected increase in gasoline stocks, crude oil inventories posted an even larger unanticipated draw, which was widely viewed as bullish for oil prices. However, composite spot cash natural gas prices retreated last week in the face of benign weather forecasts and the absence of any tropical storm activity in the Atlantic."
Morris said, "Apart from some further intervention by Mother Nature, we believe it is more likely that there is further downside rather than upside to near-term natural gas prices. Oil prices, on the other hand, seem to have gained momentum leading up to winter and continue to underpin the strength in energy shares, and we believe that the E&P sector will continue to move in whatever direction commodity prices, particularly oil, move near term.
Energy prices
The November contract for benchmark US light, sweet crudes closed at a record $83.69/bbl, up 61¢/bbl, after topping out at $84.05/bbl in intraday trading Oct. 12 on the New York Mercantile Exchange. That surpassed the previous high of $83.90 in intraday trading and the previously high closing of $83.32/bbl, both on Sept. 20. The December contract advanced 48¢ to $82.74/bbl on NYMEX. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 61¢ to $83.70/bbl. Heating oil for November delivery dipped by 0.09¢ but remained virtually unchanged at $2.25/gal on NYMEX. The November contract for reformulated blend stock for oxygenate blending (RBOB) gained 1.85¢ to $2.09/gal.
The November natural gas contract escalated by 9.8¢ to $6.97/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 20¢ to $6.63/MMbtu. "Natural gas prices [were] trading more than 3% higher this morning as we head closer to winter withdrawal season," Raymond James analysts reported Oct. 15. "At current natural gas prices, increased fuel-switching from oil products to gas is to be expected, insofar as it has not happened already. These examples of demand management are entirely normal and indeed healthy. We recognize this fact in our 2008 forecast for growth in global oil demand, which at 1.5%, is well below the IEA's 2.4%," they said.
In London, the November IPE contract for North Sea Brent crude gained 40¢ to $80.55/bbl. Gas oil for October fell $6 to $698.25/tonne.
The average price for OPEC's basket of 12 benchmark crudes rose 51¢ to $77.46/bbl on Oct. 12. So far this year, OPEC's basket price has averaged $64.33/bbl.
Contact Sam Fletcher at [email protected].