Sam Fletcher
Senior Writer
HOUSTON, June 17 -- Crude prices hit a new high of $139.89/bbl in early trading June 16 on the New York market as the US dollar weakened against the euro, but the rally couldn't be sustained due to uncertainty over how much Saudi Arabia may increase its production in July.
Various Arab officials recently have told numerous sources they plan to increase production by 300,000-500,000 b/d in July.
The July contract for benchmark US sweet, light crudes dipped to $132.84/bbl during the June 16 session before closing at $134.61/bbl, down 25¢ for the day on the New York Mercantile Exchange. Olivier Jakob at Petromatrix, Zug, Switzerland, sees a daily pattern in the market similar to last week: "a push to test new highs, failure to confirm, rapid correction, $7/bbl intraday range, [and] $135/bbl as the key pivot number."
Jakob said, "The wide intraday range remains in what can be described as an abnormal market; the pattern, however, has been so repetitive over the last week that a lot of money is left on the table both ways, and daily trading volume is now starting to recede in exhaustion."
Analysts in the Houston office of Raymond James & Associates Inc. said, "The 200-day moving average for crude now exceeds $100/bbl for the first time," having crossed $70/bbl in November and $90/bbl in April. Crude prices were lower in premarket trading June 17 "on news that the production from a Norwegian oil field is likely to resume this week following a fire that had shut in production," Raymond James analysts said.
StatoilHydro, Norway's largest producer, said its North Sea Oseberg field may resume operations this week after a fire on Platform A halted production June 15. Company officials didn't say what caused the fire in a high-voltage room. The company said 150,000 b/d of oil production was shut in as a result of the accident. They said production from the Brage and Veslefrikk fields has resumed through the Oseberg field center.
Michael C. Schmitz, Banc of America Securities LLC, New York, said, "The current composite spot natural gas price of $11.90/MMbtu includes a premium for the 'optionality' of the potential for a warmer-than-normal summer and hurricane related shut-ins, which could push natural gas prices above international LNG prices and domestic residual fuel oil prices. We believe that this premium is likely to remain in the natural gas price until late third quarter given that September is normally the peak of the hurricane season." As a result, Banc of America increased its 2008 spot gas price forecast to $9.50/MMbtu from $8.50/MMbtu. Its 2009 and long-term composite spot gas price forecasts remain at $8.25/MMbtu and $7.50/MMbtu, respectively. It also increased its spot West Texas Intermediate price estimate for 2008 to $108/bbl from $97/bbl. The 2009 and long-term WTI oil price forecasts remain $90/bbl and $80/bbl, respectively.
Supply, demand, and politics
US Republican presidential candidate John McCain said he favors lifting a federal moratorium on exploration drilling in US waters as part of efforts to reduce dependence on foreign energy sources. McCain told reporters the decision for or against drilling offshore should be left to the coastal states rather than the federal government. He wants states to be granted a bigger share of oil and gas royalties as an incentive to open up to drilling.
In other political news, Sen. Jeff Bingaman, D-NM, chairman of the Senate Energy Committee, released information from the US Commodity Futures Trading Commission that traders who could be classed as "speculators" hold nearly 70% of all outstanding WTI oil contracts on NYMEX. Bingaman released written testimony from Walter Lukken, acting CFTC chairman, before the regulator's scheduled June 17 appearance before a joint Senate committee hearing. Bingham claims that information "underscores the need for more transparency in energy markets." However, hedgers and speculators have dominated that market virtually from the start of energy trading on NYMEX, where more oil contracts are traded daily than all of the crude produced around the world in the same timeframe.
Analysts at Pritchard Capital Partners LLC, New Orleans, said, "Oil and natural gas markets have been under intense scrutiny for signs of speculation and unwarranted price levels, but traders looking past immediate weather and other short-term factors and trying to gain a broader perspective of energy demand suggest that an important determinant of future oil and natural gas prices in the US will come from Chinese government efforts to rein in demand growth. China subsidizes oil consumption and efforts to slow demand growth center around controlling rampant inflation."
After nearly 3 years of delay from hurricane damage and other problems, Thunder Horse platform in the Gulf of Mexico began producing oil and gas June 14 from its initial well. BP PLC, operator with 75% interest, said it plans to add more wells later this year. The $1 billion offshore project was scheduled to come on line in 2005. It has a production capacity of 250,000 bbl that will "not be reached overnight," said Jakob at Petromatrix. ExxonMobil Corp. has the other 25% share of that operation.
Jakob reported, "Chevron is still expected to start the Agbami 250,000 b/d field in Nigeria this month. It has not yet attracted a lot of media attention, and we would not be surprised that the Jeddah meeting [of oil producers and consumers June 22] is taken as an opportunity to announce officially its start-up. The field is very light and sweet (47 API, 0.05 sulfur) and will have as much weight as a 500,000 increase of heavier Saudi crude oil. Chevron Nigeria, however, still needs to go over the hurdle of the June 18 deadline given by the Pengassan union to resolve a labor dispute or face a strike threat."
Meanwhile, the militant Movement for the Emancipation of the Niger Delta said it will not participate in the July peace summit called by the Nigerian government because that meeting is "bound to fail."
Energy prices
The August contract for benchmark US crudes declined 13¢ to $135.34/bbl June 16 on NYMEX. On the US spot market, WTI at Cushing, Okla., was down 25¢ to $134.62/bbl. Heating oil for July slipped by 0.94¢ to $3.83/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) lost 2.47¢ to $3.44/gal.
The July natural gas contract, however, escalated by 30.8¢ to $12.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 22¢ to $12.72/MMbtu. Raymond James analysts said, "Natural gas reached a 29-month high [of $12.99/MMbtu in intraday trade on NYMEX] after the National Oceanic and Atmospheric Administration reported warmer-than-normal weather results that should drive a bearish storage report [on June 18] from the Energy Information Administration." However, gas was flat in early trading June 17.
Still, Pritchard Capital Partners said, "Traders noted a strong technical feature to the market and said they expect a settlement above $13/MMbtu this week." US power generation was up 15% in the week ended June 12, a 10% increase from the same period a year ago, as hotter-than-normal weather increased demand for air conditioning.
In London, the August IPE contract for North Sea Brent crude declined 40¢ to $134.71/bbl. However, the July gas oil contract jumped by $16.25 to $1,264/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes lost 74¢ to $129.78/bbl on June 16.
Contact Sam Fletcher at [email protected].
