Market watch: Oil futures prices rise as traders adjust holiday positions

Aug. 30, 2002
In another seesaw movement, futures prices for oil and petroleum products rebounded Thursday, generally wiping out losses from the previous session in London and New York markets.

By OGJ editors

HOUSTON, Aug.30 -- In another seesaw movement, futures prices for oil and petroleum products rebounded Thursday, generally wiping out losses from the previous session in London and New York markets.

Traders bid up prices in their efforts to cover short positions prior to the US Labor Day holiday. Because of the sustained tension between the US and Iraq, many participants in those markets apparently were reluctant to hold short positions over the long weekend.

Fear of potential military action that could disrupt oil supplies from the Middle East outweighed continued speculation at the New York Mercantile Exchange that active members of the Organization of Petroleum Exporting Countries will increase production quotas at their Sept. 19 meeting in Osaka, Japan, analysts said.

However, London brokers said consensus among traders at the International Petroleum Exchange is that OPEC members will leave their production ceiling unchanged, or else raise it by an amount insufficient to influence current tightening of supply and demand.

On NYMEX, the October contract for benchmark US sweet, light crudes jumped 58¢ to $28.92/bbl Thursday, wiping out Wednesday's 49¢ loss. The November position gained 52¢ to $28.75/bbl, in contrast to a 37¢ loss the previous session.

Unleaded gasoline for September delivery bumped up 1.14¢ to 81.32¢/gal, recouping most of a 1.62¢ loss on Wednesday. Heating oil for the same month gained 0.94¢ to 75.39¢/gal, compared with an earlier 0.56¢ decline.

The October natural gas price continued to fall, however, down 15.3¢ to $3.25/Mcf in heavy trade on NYMEX. Analysts at Enerfax Daily blamed a bearish gas storage report Thursday morning by the US Energy Information Administration and some short covering in the late afternoon trading. "After trading above $3.45(/Mcf) on local buying before the storage report came out, the market quickly sold off to $3.175(/Mcf) when the report was issued, hitting sell-stops," they said.

However, a tropical storm now in the Atlantic could trigger short covering among gas traders during NYMEX's half-day trading session Friday before the 3-day Labor Day weekend, said Enerfax analysts. That storm is still "many miles from anywhere, but they (traders) will be gone a long time," they said.

They also noted, "So far in 2002, the (US gas) market has seen an apparent demand decrease of 2.5 bcfd as average price rose about $1/MMbtu from the first to second quarter, but an apparent demand increase of 2.5 bcfd from late June to now."

The EIA reported gas injections into US underground storage totaled 59 bcf last week, compared with 37 bcf the previous week and 74 bcf during the same period a year ago.

"We believe this week's (report of a) significantly higher injection compared with the prior week—even after adjusting for the slight week-over-week change in temperatures—reflects inconsistent EIA weekly data rather than any indication of backed-out demand due to the recent surge in natural gas prices, especially given that most industrial users purchase gas on a monthly basis," said Robert Morris, Salomon Smith Barney Inc., in his weekly exploration and production report Thursday. "In fact, we believe that natural gas demand in recent weeks has benefited as hydroelectric power supplies in the Pacific Northwest have dissipated."

Morris reported, "Precipitation in the Pacific Northwest is projected to be roughly 3% higher than average this year vs. almost 35% below average in 2001, which was a near-record low. Consequently, we estimate that hydropower supplies displaced roughly 1.6 bcfd of natural demand, on average, on a year-over-year basis during the second quarter, including nearly 2.4 bcfd, on average, of year-over-year displacement during June."

However, he said, "Water flow in the Pacific Northwest had dropped significantly by early August, as most of the snow cap thawed. In addition, according to the Northwest Power Planning Council, US reservoirs are now only slightly higher than last year compared to roughly 5% above year-earlier levels during June."

As a result, Morris said, the amount of natural gas displaced by hydropower in electric generation "has now dropped to roughly 0.8 bcfd, on average, during August, compared with 2.4 bcfd, on average, during June and should further dissipate over the next several weeks."

In London, the October contract for North Sea Brent oil gained 57¢ to $27.52/bbl Thursday on the IPE. However, the September natural gas contract lost 2.4¢ to the equivalent of $1.93/Mcf.

The average price of OPEC's basket of seven benchmark crudes increased by 26¢ to $26.53/bbl.