Market watch, June 16

Energy futures prices closed mixed in trading on the New York Mercantile Exchange (NYMEX) Thursday. Unleaded gasoline prices continued their upward march. Complex factors are contributing to high gasoline pump prices, says Texaco Inc. CEO Peter I. Bijur.


Energy futures prices closed mixed in trading on the New York Mercantile Exchange (NYMEX) Thursday. NYMEX light sweet crude gained 10� to rest at $32.95/bbl for July delivery, while the August contract stood at $30.95, down by 22�.

Refined petroleum products also ended mixed, with July home heating oil pulling back by 1.12� to rest at 77.44�/gal, while unleaded gasoline for the same month rose by 0.75� to settle at $1.0880.

Complex factors are contributing to high gasoline pump prices, says Texaco Inc. CEO Peter I. Bijur. Bijur told a news conference at the World Petroleum Congress in Calgary Thursday that contributing factors include high state taxes, strong summer demand, the high price of crude oil, and efforts by some companies to avoid paying a royalty to Unocal Corp. on gasoline produced in accordance with California Air Resources Board standards.

Rogerio Montemayor, director general of the Mexican state oil company Petroleos Mexicanos (PEMEX), said the question of whether crude oil prices are too high depends on who you are. As a producer, he said, oil prices are not too high, but they have risen too fast. He questioned whether current prices are sustainable.

Bijur said the current oil price of $32-33/bbl is unsustainable but prices of $11-12/bbl a year ago were also unsustainable. Bijur stressed a need for price stability. He said the Organization of Petroleum Exporting Countries (OPEC) understands that need and will likely address it at its next meeting.

Gas Demand
NYMEX natural gas for July delivery advanced 20.7� to finish at $4.46/Mcf of gas. Reflecting on the rise in natural gas prices, Bijur and Linda Cook, CEO of Shell Gas & Power, a member of the Royal Dutch/Shell Group, said current US high prices are a reflection of market characterized by high demand and low storage levels.

Bijur, who chaired a recent National Petroleum Council study on gas supply-demand, said he believes there is enough gas to meet demand estimates of 30 tcf for the US in 10-15 years. The former head of Texaco Canada Inc. said Canada has large reserves, and there is strong potential in the Gulf of Mexico.

To meet this demand, the US will need to maintain its rig count, he said. And the industry will need access to US federal lands. The industry's excellent environmental track record justifies such access, says Bijur.

In after-hours electronic access trading in New York, light sweet crude was fetching $32.55/bbl for the July position and $30.70 for the August contract, both down from the NYMEX close.

Meanwhile, in London Thursday, North Sea Brent crude oil futures closed mixed on the International Petroleum Exchange (IPE), as players covered short positions ahead of the July contract expiration. The expiring contract settled at $31.26/bbl, up by 24�, with a daily high of $31.38 and a low of $30.56.

August contract
The new front-month August contract settled at $29.39/bbl, down by 11� from the previous close, but likely to move above $30 soon. The day's high for August was $29.86 and the low $29.12.

July gasoil ended lower at $233.75/tonne, down by $4.50. The day's high was $237.50 and the low $232.75. On the IPE, the July natural gas contract closed at the equivalent of $2.61, up 2�.

Brokers said the market appeared stable and was looking for fresh news.

In Singapore, the price of North Sea Brent crude oil slipped below the $30/bbl level after staying above $31 for the last three sessions.

Traders said there was a big imbalance in product prices in Asian markets and crude prices on international markets. Oil prices have been very strong since last Tuesday on reports that global oil production would stay on the tight side, keeping up strong crude demand.

This, said the traders, pushed the Brent price to a high of $31.15/bbl for the forward July contract in Singapore on Tuesday. It then touched $31.49 on Wednesday.

They noted that merchant refiners in Asia were again complaining of lower margin levels as regional product demand remains well below expectations, while crude was rising on speculative support.

As the week ended, Singapore's forward August position saw Brent closing at $29.18/bbl, after the July futures contract expired on Thursday at $31.49. September Brent was at $28.17.

The price of the OPEC basket of seven crudes stood at $29.55/bbl Thursday, down from $29.76 the previous day, according to OPEC secretariat calculations.

A meeting Thursday between the Saudi Arabian and Mexican oil ministers gave no strong hints about OPEC's likely decision on output increases at its June 21 ministerial talks in Vienna.

PEMEX officials have expressed support for boosting oil production as a result of recent market developments. Mexico, although not a member of OPEC, has been cooperating with the organization over production-related issues.

Traders deduced from the statement that chances of a production increase by oil producers after the OPEC meeting next week has increased, in the light of higher crude prices.

Until OPEC makes a decision and while gasoline, in particular, remain buoyant in the US, prices are likely to stay above the $30/bbl mark, traders said.

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