Sam Fletcher
Senior Writer
HOUSTON, July 2 -- Crude prices climbed to a new high July 1 on the New York market as fear of a possible attack by Israel on Iran's nuclear facilities stoked worries of supply disruptions.
"Crude traded up on continued tensions between Israel and Iran and the International Energy Agency cutting supply forecasts. The agency cut its global supply forecast to 95.33 million b/d by 2012, reflecting 2.7 million b/d less (-3%) than its previous forecast a year ago. While higher prices and slower economic growth are expected to weigh on world demand, demand growth is expected to outpace supply growth over the next 5 years, further tightening the market," said analysts in the Houston office of Raymond James & Associates Inc.
A top IEA official said supply constraints, refinery limitations, and continued demand growth among emerging markets will maintain pressure on energy prices (OGJ Online, July 1, 2008). However, Olivier Jakob at Petromatrix, Zug, Switzerland, said, "The IEA has made its medium-term forecast on the basis of a crude oil price of $110/bbl on a real 2008 basis. We are already pricing 30% higher than that basis making the report already obsolete on current prices. Nonetheless the report has significantly revised down the demand projections; but since we are in a high flat price environment it is only the lesser downward revision to non-OPEC supplies that made it through the news."
Oil prices were up in premarket trading July 2 partly due to "a 4,000-worker strike in Venezuela potentially impacting 600,000 b/d of production in the Orinoco Belt," said Raymond James analysts. "On the natural gas front, six tropical waves in the Atlantic Ocean and Caribbean Sea and one particular wave off the African coast, possibly developing into a tropical depression or storm over the next few days, are lending support for natural gas prices."
Despite widespread speculation about Israel's possible plans for a bomb strike on Iran, analysts at Friedman, Billings, Ramsey & Co. Inc., Arlington, Va., remain skeptical. "We would be cautious before interpreting the June 5 Israeli Air Force drills over the eastern Mediterranean Sea as a practice run for a bombing campaign against Iran," FBR analysts said. "We concede the exercises superficially resemble Israel's practice runs with its newly acquired F-16s prior to the successful 1981 bombing of the Iraqi Osirak reactor at al-Tuweitha."
However, they said, the latest drills may have been only a sword-rattling warning to Iran as well as a political maneuver for Israeli voters. "With Prime Minister Ehud Olmert's Kadima party primaries scheduled on Sept. 25 and general elections possible in November once the Israeli parliament returns from summer recess, it should not stretch US investors' credulity to imagine that incumbents want to look tough on security," the analysts said.
Moreover, Iran may be using today's "robust communication infrastructure" to "scare up" the price of crude while also permitting the US and Iran to engage in "megaphone diplomacy" via public statements reported in the media, despite the halt of official relations 3 decades ago, analysts said. Any price premium for the escalated risk of a disruption of crude exports from Iran may already be imbedded in current prices, they said.
US inventories
The Energy Information Administration reported July 2 commercial US crude inventories fell 2 million bbl to 299.8 million bbl in the week ended June 27, exceeding the Wall Street consensus of a 400,000 bbl draw. Gasoline stocks escalated by 2.1 million bbl to 210.9 million bbl in the same week, surpassing a consensus of a 500,000 bbl increase. Distillate fuel inventories grew by 1.3 million bbl to 120.7 million bbl, below the consensus of a 2 million bbl increase. Propane and propylene inventories increased by 1.7 million bbl to 41.4 million bbl in the same period.
Imports of crude into the US dipped by 83,000 b/d to 10.2 million b/d that same week. Input of crude into US refineries increased 155,000 b/d to 15.4 million b/d, with units operating at 89.2% capacity. Gasoline production fell to 9 million b/d. Distillate fuel production decreased to 4.6 million b/d.
Energy prices
The August contract for benchmark US light, sweet crudes gained 97¢ to a record $140.97/bbl on the New York Mercantile Exchange. The September contract increased $1 to $141.58/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 97¢ to $140.97/bbl. Heating oil for August delivery increased 3.35¢ to $3.94/gal on NYMEX. The August contract for reformulated blend stock for oxygenate blending (RBOB) was up 1.43¢ to $3.51/gal.
The August natural gas contract bumped up 15.2¢ to $13.51/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 11¢ to $13.27/MMbtu.
In London, the August IPE contract for North Sea Brent crude increased 84¢ to $140.67/bbl. The July gas oil contract gained $14.25 to $1,276.75/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes was up 91¢ to $136.94/bbl on July 1.
Contact Sam Fletcher at [email protected].
