Market watch: Energy traders cautious about US-Iraqi tensions

By OGJ editors

HOUSTON, Sept. 12 -- Energy futures prices were mixed Wednesday in an abbreviated session on the New York Mercantile Exchange that many traders skipped to attend anniversary memorial services for victims of the Sept. 11, 2001, terrorist attack at the nearby site of the former World Trade Center.

Trading was generally cautious because of continued tension between the US and Iraq. Although most traders apparently doubt Middle East oil supplies will be disrupted by armed conflict between the two countries, they still are reluctant to discount that possibility, analysts said.

Some analysts maintain that political tensions in the Middle East have built a $5/bbl "war premium" into near-term oil prices. However, industry analysts at Petroleum Industry Research Foundation Inc., New York, recently reported that the current drop in Iraq's oil production probably has contributed more to price increases than any risk of US military action against Iraq (OGJ Online, Sept. 11, 2002).

Analysts at Merrill Lynch, Pierce, Fenner & Smith Inc. last week reported "improving supply-demand and inventory fundamentals are the much more important driver of higher oil prices (OGJ Online, Sept. 10, 2002)."

The market also was impacted by American Petroleum Institute's bearish report late Tuesday that US oil stocks declined by 470,000 bbl last week, less than half of what generally was expected, as traders largely ignored a more optimistic US Department of Energy report of a 5 million bbl decline from US oil inventories.

The October contract for benchmark US sweet, light crudes advanced by 4¢ to $29.77/bbl Wednesday on NYMEX, while the November contract inched up 1¢ to $29.90/bbl. Unleaded gasoline for October delivery gained 0.61¢ to 80.55¢/gal, but heating oil for the same month lost 0.3¢ to 78.97¢/gal.

The October natural gas contract fell 10.6¢ to $3.25/Mcf Wednesday. "Bearish factors continue, (including) plenty of storage, shoulder month fundamentals in place, and an economy that seems stagnated. But with the steady drop in wellhead supplies, the market is not likely to dip too far down heading into winter," said analysts at Enerfax Daily.

In London, futures prices for North Sea Brent oil settled lower Wednesday in thin, lackluster trade on the International Petroleum Exchange. However, brokers said market volume and activity probably would increase after President George W. Bush outlined the latest US position on Iraq in an address Thursday to the United Nations General Assembly in New York.

The October Brent contract was down 19¢ to $28.39/bbl on the IPE. The October natural gas contract lost 3.5¢ to the equivalent of $2.68/Mcf.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes moved up 2¢ to $27.63/bbl Wednesday.