Sam Fletcher
Senior Writer
HOUSTON, June 20 -- Crude futures prices closed at record high levels June 17 as energy prices continued to escalate after the Organization of Petroleum Exporting Countries raised its production quota to 28 million bbl to match more closely its actual output.
The July contract for benchmark US light, sweet crudes jumped by $1.89 to $58.47/bbl June 17 on the New York Mercantile Exchange, the highest closing price for a near-month contract since NYMEX began trading crude in March 1983. Crude contracts for October through March closed above $60/bbl in that session.
Credibility lost
"OPEC has lost all credibility as a guarantor of oil price stability," said analysts at the Centre for Global Energy Studies, London, in a June 20 report. Instead, analysts said members of the now "more confident" OPEC "seem comfortable in testing the limits to which they can push oil prices without triggering a reaction from consumers."
Another discretionary quota increase of 500,000 b/d to a new level of 28.5 million b/d authorized by OPEC members "will be triggered only if 'oil prices remain at current levels or continue to rise further,'" CGES analysts observed.
At the June 15 meeting, the price of OPEC's old basket of seven benchmark crudes averaged more than $52/bbl before the group voted to change to a basket of 11 benchmark crudes, altering the mix to heavier, sourer crudes of lower value. This suggests a "a price ceiling of some $50/bbl for the newly defined OPEC basket. This is more than double the organization's $25/bbl price target, which existed as the mid-point of its target price band until the end of January 2005," said CGES analysts.
Unlike previous energy market shocks, the current situation is driven by growing world demand for petroleum products rather than by crude supply shortages. "OPEC also raised its own estimate of the call on its output in the second half of the year to 150 million b/d, due to greater-than-expected global demand and a slowdown in production from Russia. At the same time [last week], the [US Energy Information Administration] reported a larger-than-projected drop in US crude and gasoline inventories, although distillate stocks built more than expected [in the week ended June 10]," said Robert S. Morris, Banc of America Securities, New York, in a separate report June 20.
"Overall, the [latest EIA] inventory data was viewed as bullish with demand remaining quite strong—over the prior 4 weeks, distillate demand was up nearly 7% and gasoline demand up roughly 3% over last year. With the build in distillates and draw in gasoline, gasoline prices took over in leading the energy complex higher," Morris said.
"From the supply side, only Saudi Arabia can do anything to alleviate the present situation, but the kingdom has been raising the price of its oil relative to benchmark grades, making it less attractive [to buyers] rather than more so," said CGES.
Meanwhile, Raymond James & Associates Inc., St. Petersburg, Fla., on June 20 again raised its oil price forecast, to an average $51/bbl for 2005, up from $48/bbl previously; and price forecasts in 2006 to $52/bbl vs. $47/bbl previously for oil, and $8/Mcf for natural gas from $7.50/Mcf. Raymond James retained its 2005 natural gas price estimate at $6.86/Mcf.
Energy prices
The August crude contract gained $1.75 to $59.18/bbl June 17 on NYMEX. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by $1.90 to $58.48/bbl. Gasoline for July delivery jumped by 4.93¢ to $1.65/gal on NYMEX. Heating oil for the same month gained 2.63¢, also to an average $1.65/gal.
The July natural gas contract escalated by 7.7¢ to $7.69/MMbtu on NYMEX, "driven by a sharp rally in crude oil and a firmer weekend [spot natural gas] cash market ahead of slightly warmer weather this week despite a cool weekend in some areas," said analysts at Enerfax Daily in a June 20 report.
"The rise in crude oil prices helped to also lift natural gas prices, combined with warmer-than-normal temperatures across much of the country and a lower-than-projected [US natural gas] storage injection figure," Morris said.
In London, the August contract for North Sea Brent crude pushed toward a new record high, up by $1.54 to $57.76/bbl on the International Petroleum Exchange.
The average price for OPEC's new basket of 11 benchmark crudes increased by $1.40 to $51.58/bbl on June 17. So far this year, OPEC's basket price has averaged $46.20/bbl.
Contact Sam Fletcher at [email protected]
