Sam Fletcher
OGJ Senior Writer
HOUSTON, Sept. 18 -- Oil futures prices declined Tuesday, as traders bled off more of the market's built-in "war premium" after Iraq sent a letter to the United Nations saying it is willing to discuss readmiting UN weapons inspectors that it has kept out for the last 4 years.
But the American Petroleum Institute's bullish weekly report of falling US inventories of oil and petroleum products after the close of trading Tuesday may inspire a price rebound.
Iraq's move generally was viewed as defusing US efforts to rally world support for military action against Saddam Hussein. Energy futures prices might have fallen further if not for negative reactions by US and UK officials to Iraq's statement, analysts said.
Iraq also apparently abandoned its illegal surcharge of as much as 70¢/bbl on oil that it exports under the UN oil-for-aid program. Analysts said that gives other members of the Organization of Petroleum Exporting Countries even more reason to maintain its current production quota at its ministerial meeting Thursday in Osaka.
Obaid bin Saif Al-Nasseri, energy minister for the United Arab Emirates, reiterated Tuesday what many other OPEC ministers have said in recent weeks: "There is no justification for an increase as prices are still within the (OPEC target) range of $22-28/bbl." He suggested that OPEC could schedule another meeting at the end of October to review its decision if world demand for oil increases.
The October contract for benchmark US light, sweet crudes dropped 59¢ to $29.08/bbl Tuesday on the New York Mercantile Exchange. The November oil position was down 58¢ to $29.32/bbl. Unleaded gasoline for October delivery fell 1.73¢ to 77.63¢/gal, while heating oil for the same month lost 1.14¢ to 77.23¢/gal.
However, the October natural gas contract advanced 17.2¢ to $3.68/Mcf on NYMEX, boosted by "significant fund buying and concerns over a tropical depression in the Caribbean," said analysts Wednesday at Enerfax Daily. "The market opened lower, but soon turned around sharply on news of a regenerated tropical depression and ended near the high of the day," they said. "For today, whether the market goes up or down will likely be determined by the movement of tropical depression. This market still needs a fundamental driver to keep prices this high."
API late Tuesday reported US crude inventories fell by 6.4 million bbl to 292 million bbl last week. It said US distillate stocks dropped 2.3 million bbl to 131.8 million bbl during the same period, while US gasoline stocks were down 1.6 million bbl to 204.8 million bbl.
The drop in US oil inventories occurred "even though refinery runs fell 220,000 b/d to their lowest level since May as the early fall maintenance season began, and imports recovered by 1 million b/d," said Matthew Warburton at UBS Warburg LLC, New York.
"While 3.5 million bbl of the draw was within the volatile Petroleum Administration for Defense District 5 West Coast region and may partially reflect recent maintenance at the Alpine field in Alaska, the key focus of the market will be the further draw in PADD 2 (upper Midwest states)," he said. "PADD 2 inventories fell to their lowest level since 1991, which will further underpin current West Texas Intermediate prices."
Implied distillate demand "showed its first positive year-over-year comparison since July," said Warburton. The drop in gasoline inventories "reflected lower imports (down 276,000 b/d) and lower production (down 299,000 b/d as refinery gasoline yields were at their lowest level in 2 months," he said. "Following the end of the driving season, lower refinery yields and imports in the near future are likely to result in a further draw down of inventories as refiners prepare to switch to winter grades."
In London, the new front-month November contract for North Sea Brent oil lost 55¢ to $27.97/bbl on the International Petroleum Exchange. The October natural gas contract slipped 0.9¢ to the equivalent of $2.61/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes fell 63¢ to $26.92/bbl Tuesday.
Contact Sam Fletcher at [email protected]
