Market watch: Oil prices rise with call for OPEC to hold production quotas
Oil futures prices increased Monday in New York and London after Kuwait's acting oil minister called for the Organization of Petroleum Exporting Countries to maintain its current production quotas.
By OGJ editors
HOUSTON, Aug.20 -- Oil futures prices increased Monday in New York and London after Kuwait's acting oil minister called for the Organization of Petroleum Exporting Countries to maintain its current production quotas rather than increase them—as most observers expect—at its ministerial conference scheduled next month in Japan.
"When prices increase above $30/bbl, then OPEC will take the necessary measures to restore prices to within the $22-28/bbl range," said Sheikh Ahmad Fahad Al-Ahmad Al-Sabah, Kuwait's minister of information and acting oil minister, at a press conference Monday in Moscow.
The average price for OPEC's basket of seven benchmark crudes gained 24¢ to $26.82/bbl Monday.
Al-Sabah was in Russia for the meeting of a joint Kuwait-Russian economic, trade, scientific, and technological committee. He told reporters OPEC is not worried about Russia increasing its oil production in view of global economic growth and increased world demand for oil.
Kuwait, in fact, is interested in giving Russian oil companies an equal chance to compete with other international firms in developing Kuwaiti oil fields. Russian companies would face strong competition in that effort, Al-Sabah warned.
Kuwait has said it would spend $7 billion to develop four of its northern oil fields.
Anticipation that the American Petroleum Institute would report another sharp fall in US oil stocks late Tuesday, along with worries of a possible disruption of Middle East oil supplies, also added to the markets' bullish sentiment, analysts said.
The possibility of military conflict between the US and Iraq boosted oil prices nearly 10% last week, said Christopher Theal, an analyst at CIBC World Markets, the investment and merchant banking arm of the Canadian Imperial Bank of Commerce. What's more, he said, the resulting fly-up in fuel oil prices could trigger increased demand for natural gas.
"Crude oil prices are now rising faster than natural gas prices, which we believe should result in rising gas demand as end users switch from fuel oil to gas," he said. That switch should be evident this fall in lower weekly injections of gas into US underground storage.
The September contract for benchmark US sweet, light crudes advanced by 51¢ to $29.84/bbl Monday on the New York Mercantile Exchange, while the October contract gained 29¢ to $28.80/bbl.
The September natural gas contract jumped 11.8¢ to $3.27/Mcf on NYMEX in "another round of short covering by funds, and seasonal high demands," said analysts at Enerfax Daily.
"The market opened lower, but once it broke above $3.10(/Mcf) about noon (Monday), the rally was on with (fundamentals) leading the way. Stops were triggered, forcing some of the fund shorts out of the market," analysts said.
They advised, "Look for the market to continue past $3.40(/Mcf on Tuesday) before it hits major resistance. After a hot weekend on the East Coast, in which New York City hit a record electricity delivery of 416,475 Mw-hr, early estimates for (the US Energy Information Administration's natural gas) storage report (on Thursday) are about 40-50 bcf, compared with a build of 85 bcf a year ago and a 5-year average build of 63 bcf. Technical support for (Tuesday) is seen at $3.16(/Mcf) and then $3(/Mcf), with resistance at $3.39(/Mcf)."
Unleaded gasoline for September delivery fell by 0.1¢ to 79.09¢/gal Monday on NYMEX. Heating oil for the same month slipped by 0.06¢ to 73.39¢/gal.
In London, the October contract for North Sea Brent oil gained 26¢ to $27.26/bbl on the International Petroleum Exchange. However, the September natural gas contract dipped by 0.3¢ to the equivalent of $1.88/Mcf on IPE.