Sam Fletcher
OGJ Senior Writer
HOUSTON, Sept. 13 -- President George W. Bush deflated some of the "war premium" built into oil futures prices Thursday as he apparently stepped back from unilateral preemptive US military action against Iraq in his speech to the United Nations assembly in New York.
"While no formal timetable was highlighted by President Bush for Iraq to comply with the UN sanctions as laid out in his speech, we continue to believe that there is a low likelihood of an attack before mid-December," said Matthew Warburton, analyst with UBS Warburg LLC, New York. Meanwhile, Warburton said Friday, "With a tightening global market due to the virtual absence of Iraqi crude from the supply mix and OPEC-10 producing less than required to balance oil markets, we believe the downside to crude prices is limited to $25/bbl in the near term."
Some analysts claim political tensions in the Middle East have added $5/bbl to near-term oil prices. Others maintain that the falloff of Iraq's oil production in recent months is more responsible for that price hike than any risk of US military action against Iraq (OGJ Online, Sept. 12, 2002). However, traders apparently are convinced that a major portion of that so-called war premium will remain in place, pending total elimination of the threat of conflict that could potentially disrupt Middle East oil supplies.
The October contract for benchmark US light, sweet crudes fell 92¢ to $28.85/bbl Thursday on the New York Mercantile Exchange. The November position dropped 87¢ to $29.03/bbl. Heating oil for October delivery plunged 2.39¢ to 76.58¢/gal, while unleaded gasoline for the same month lost 2.01¢ to 78.54¢/gal.
US refiners produced a record amount of gasoline and heating oil over the past 8 months, with gasoline stocks now 4% higher than average for this time of year, the American Petroleum Institute said in a special report to Congress.
The October contract for natural gas gained 7.9¢ to $3.33/Mcf "after bouncing off key support at $3.19(/Mcf)" Thursday on NYMEX, said analysts at Enerfax Daily.
The US Energy Information Administration early Thursday reported 74 bcf of natural gas was injected into US underground storage last week, up from 65 bcf the previous week. That reduced the year-over-year surplus to 182 bcf?313 bcf over the 5-year average?with total US gas storage now at 2.86 tcf.
Robert Morris at Salomon Smith Barney Inc., New York, said Thursday that US imports of Canadian gas were down 2% during the first 8 months of 2002. Gas production in western Canada declined 1% during the same period, "despite a ramp-up in volumes from the significant Ladyfern discovery," he said. "Importantly, Ladyfern has begun to decline from its peak rate of around 0.65 bcfd, and we expect this decline to accelerate with volumes down as much as 50%, on average, in 2003 relative to this year."
In London, the October contract for North Sea Brent oil closed at $27.73 Thursday on the International Petroleum Exchange, down 66¢ for the day after trading in a range of $27.48-28.59/bbl. The October natural gas contract lost 3.5¢ to the equivalent of $2.69/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes dropped 40¢ to $27.23/bbl Thursday.
Contact Sam Fletcher at [email protected]