Market watch: London oil futures prices inch up with rising Middle East tensions

By OGJ editors

HOUSTON, Sept. 3 -- Futures prices for the October contract of North Sea Brent oil edged up Monday in London, wiping out Friday's slight decline and remaining relatively stable above $27/bbl on fears of escalating Middle East tensions.

Market volumes and liquidity were expected to pick up Tuesday as US markets reopened after the Labor Day holiday, brokers said.

UBS Warburg LLC in New York raised its 2002 oil price forecast by $1 to $24.50/bbl, based on "the unexpected strength of oil prices year-to-date, supported by uncertainty surrounding potential US military action in Iraq, and the ongoing reduction in Iraqi oil exports due to the retroactive UN pricing mechanism," analyst Matthew Warburton reported Tuesday.

"Moreover, this increase reflects the fundamental tightening of crude markets and our believe that the 10 active OPEC producers will continue to restrain output during the second half of 2002 despite a gradual increase in global crude demand," he said.

Ali I. Naimi, Saudi Arabia's minister of petroleum and mineral resources, said Monday that it is "premature" to talk about any change in oil production quotas by the Organization of Petroleum Exporting Countries at the ministerial meeting Sept. 19 in Osaka, Japan.

The Saudi Press Agency quoted Naimi as saying, "The (Saudi) kingdom's petroleum policy always aims at stabilizing the international oil market, taking into account the importance of balance of supply and demand, stabilizing prices at a level that suits both producers and consumers, and, at the same time, serving the world's economy and ensuring its steady growth."

Another Middle East oil minister, Mohamed Bin Hamad Al Ramahi of Oman, said Monday there is no need for OPEC to increase its output, since the recent rise in oil prices reflects escalation of political tensions in the Middle East rather than market fundamentals of supply and demand. He was quoted by the Omani Arabic newspaper as saying most oil-producing countries probably favor his view.

Oman was invited to the Osaka meeting as an observer and is coordinating its policies with other non-OPEC producers, especially Russia and Norway, the minister said.

"We expect average crude prices to fall in 2003 but have raised our average forecast for next year by $1.50 to $23/bbl, based on a demand recovery (in excess of 1 million b/d), no lengthy interruption to Iraqi exports, and continued production restraint by OPEC-10," said Warburton. "Our long-term price assumption for 2004 and beyond remains unchanged at $20/bbl, but the risks are skewed to the upside."

The October Brent contract gained 7¢ Monday to $27.54/bbl on the International Petroleum Exchange, wiping out Friday's 5¢ loss. However, the October natural gas contract dipped by 0.8¢ to the equivalent of $2.61/Mcf on the IPE.

In after-hours electronic trading on the New York Mercantile Exchange early Tuesday, the October contract for benchmark US light, sweet crudes was down 23¢ to $28.75/bbl.

That same contract gained 6¢ to $28.98/bbl during the shortened NYMEX trading session Friday ahead of the 3-day Labor Day weekend, while the November position increased 5¢ to $28.80/bbl. Unleaded gasoline for September delivery increased 0.1¢ to 81.42¢/gal Friday, but heating oil for the same month slipped by 0.57¢ to 74.82¢/gal. The October natural gas contract gained 4.6¢ to $3.30/Mcf in NYMEX trade Friday.

The average price for OPEC's basket of seven benchmark crudes increased 19¢ on Friday but fell 95¢ Monday to $26.77/bbl. For last week as a whole, OPEC's basket price averaged $26.58/bbl, down 26¢ from the previous week.

So far this year, OPEC's basket price has averaged $23.03/bbl, compared with an average $23.12/bbl for all of 2001.