By OGJ editors
HOUSTON, Aug. 27 -- Energy futures prices jumped Monday on the New York Mercantile Exchange, generally wiping out losses in the previous two sessions, often by large measures.
Analysts claimed the market is still factoring a war premium on energy prices in expectation of eventual armed conflict between the US and Iraq. But traders also indicated they expect bullish reports this week of draws on US inventories of oil and petroleum products.
"Even with the emphasis on patience from the US administration attempting to diffuse some of the oil price war premium, we believe that oil prices will remain firm in the near term," said Matthew Warburton, an industry analyst with UBS Warburg LLC in New York. "While President (George W.) Bush's comments mid-week seemed to be designed to dampen expectation of an imminent US attack, we believe as long as Iraq refuses to accept weapons inspectors back unconditionally, the downside to oil prices before Sept. 19 is limited to perhaps $25/bbl.
Oil ministers of the Organization of Petroleum Exporting Countries are scheduled to meet Sept. 19 in Osaka, Japan, to review the group's production quotas and global demand. Algeria has submitted a formal request for an increase in its production; Nigeria and Venezuela also have indicated their desire for production increases. But other OPEC ministers have said the group should maintain current production levels for the remainder of this year.
"We would put a 70% probability on an OPEC-10 (the 10 active OPEC members, minus Iraq) quota increase of 500,000-1 million b/d on Sept. 19 (effective from Oct. 1)," Warburton said Monday. "What will influence cash prices in the fourth quarter is what OPEC produces, not the quota, but the decision on the latter will influence market sentiment."
The October contract for benchmark US light, sweet crudes increased by 65¢ to $29.28/bbl Monday, wiping out combined losses of 61¢ from profit-taking in the previous two sessions on NYMEX. The November contract shot up 70¢ to $28.91/bbl, far surpassing previous losses totaling 29¢.
Unleaded gasoline for September delivery jumped up 2.59¢ to 82.11¢/gal Monday, negating total losses of 1.14¢ in the two previous NYMEX sessions. Heating oil for the same month was up 1.21¢ to 75.11¢/gal, but still trailed earlier combined losses of 1.5¢.
The September natural gas contract rose 13¢ to $3.62/Mcf on Monday, after slipping 3¢ Friday in the wake of a 24.1¢ hike Thursday. Monday's 4% hike came on a wave of technical buying, said analysts at Enerfax Daily. "Traders couldn't push the market down in the morning, so they drove it higher in the afternoon, with much of the buying coming near the close. Higher crude oil futures also helped boost the natural gas market," they said.
During the NYMEX trading session Tuesday, Enerfax analysts reported, "Traders face heavy open interest at calls from $3.50 to $4(/Mcf), positions that would require covering with options expiring. Look for resistance upward between $3.68-3.72(/Mcf)." Moreover, they said, "Fundamentally, the recent rally is also backed by a long-range weather forecast calling for a colder-than-normal winter. This week, look for the (Energy Information Administration) to report a storage injection of 35-45 bcf, compared to a build of 74 bcf a year ago, and a 5-year average build of 59 bcf."
The International Petroleum Exchange in London was closed Monday for a public holiday.
The average price for OPEC's basket of seven benchmark crudes increased by 24¢ to $26.67/bbl Monday.
Last week, OPEC's basket price averaged $26.81/bbl, up $1.14 from the previous week. So far this year, the OPEC basket price has averaged $22.92/bbl, compared with an average of $23.12/bbl for all of 2001.