Market watch: Iraqi 'progress' softens energy future prices

Energy futures prices slipped Monday near the end of trading on the New York Mercantile Exchange with rumors of progress in negotiations between Iraq and United Nations officials.

By OGJ editors

HOUSTON, Sept. 17 -- Energy futures prices slipped Monday near the end of trading on the New York Mercantile Exchange with rumors of progress in negotiations between Iraq and United Nations officials.

After trading ended, it was confirmed that Iraq agreed unconditionally to allow the return of UN arms inspectors that it had refused for 4 years to readmit. White House officials remained skeptical of that agreement.

Some sources claim that decision could trigger a drop of $2-4/bbl in world oil prices by deflating the so-called "war premium"—the extra amount that traders are thought to have bid up prices in anticipation of possible disruption of Middle East oil supplies by military action against Iraq.

However, other analysts claim that the rise in world oil prices in recent months actually reflects the fundamentals of a tight market caused by Iraq's reduction of its oil exports under the UN oil-for-aid program.

Meanwhile, members of the Organization of Petroleum Exporting Countries are scheduled to meet Thursday in Osaka to decide whether or not to increase production quotas. Many observers expect the group to continue its present production quota, based on rhetoric in recent weeks among most OPEC ministers who advocate that measure.

However, Matthew Warburton at UBS Warburg LLC, New York, claims OPEC is so evenly divided on that question that the outcome may remain in doubt until the final moments of that meeting, which could extend into Friday ahead of the 8th International Energy Forum that is to start Saturday in Osaka. The final arbiter of that dispute, he said, will be Saudi Arabia, who is also "the key proponent of a quota increase."

On the other hand, Marshall Adkins, an analyst in the Houston office of St. Petersburg-based Raymond James & Associates Inc., reported, "It doesn't matter what OPEC 'officially' does" at that meeting, since members "are likely to 'unofficially' adjust the spigot as needed in order to maintain mid-$20/bbl oil prices."

The October contract for benchmark US sweet, light crudes dropped 14¢ to $29.67/bbl Monday on NYMEX. The November oil position declined by 9¢ to $29.90/bbl. Unleaded gasoline for October delivery fell 1.2¢ to 79.36¢/gal. Heating oil for the same month lost 0.3¢ to 78.37¢/gal.

The October natural gas contract registered the only gain, up 4¢ to $3.51/Mcf on NYMEX. "The formation of another tropical depression in the central Caribbean helped bolster prices somewhat midmorning by locals, and scale-up selling was seen by trade. Some locals were out for the Yom Kippur holiday, which helped keep a lid on volume," analysts at Enerfax Daily reported Tuesday.

In London, the November contract for North Sea Brent oil retreated 15¢ to $28.52/bbl Monday on the International Petroleum Exchange. However, the October natural gas contract inched up 0.6¢ to the equivalent of $2.62/Mcf on the IPE.

OPEC's basket of seven benchmark crudes gained 9¢ to $27.55/bbl Monday.

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