Market watch: Oil futures prices decline as markets reduce 'war premium'

Prices for oil and petroleum products declined as markets reduced the "war premium" in the face of growing indications of the US's inability to launch an immediate military campaign against Iraq.

Oct 7th, 2002

By OGJ editors

HOUSTON, Oct. 7 -- Futures prices for oil and petroleum products declined slightly Friday as markets slowly reduced the "war premium" in the face of growing indications of the US's inability to launch an immediate military campaign against Iraq.

Not only has President George W. Bush had problems lining up even domestic support for military action against Iraq, but more attention is focusing on the low levels of US petroleum stocks after two storms in the Gulf of Mexico in the last 2 weeks have hampered oil and natural gas production, as well as imports of crude and petroleum products.

The US Minerals Management Service reported no major damage to offshore production facilities, not even in the Ship Shoal production area off the Louisiana coast, which apparently was hardest hit last week by Hurricane Lili.

However, Houston-based Rowan Cos. Inc. reported its Rowan-Houston jack up rig, built by Marathon LeTourneau Co. in 1969, capsized and sank in 105 ft of water in Ship Shoal Block 207. That rig had been under contract to Anadarko Petroleum Corp., also of Houston.

In a separate incident, Diamond Offshore Drilling Inc. of Houston said its semisubmersible rig, Ocean Lexington, broke its moorings and drifted 45 miles before running aground in 35 ft of water off Louisiana. Company officials said it would take several weeks to complete an estimate of damages and related repairs.

The November contract for benchmark US light, sweet crudes dropped 14¢ to $29.62/bbl Friday on the New York Mercantile Exchange, while the December contract lost 12¢ to $29.52/bbl. Unleaded gasoline for November delivery fell 0.53¢ to 79.72¢/gal; heating oil for the same month was down 0.24¢ to 79.19¢/gal.

The November natural gas contract, however, inched up 1.5¢ to $3.74/Mcf Friday on NYMEX. "The market climbed steadily higher all morning on a mix of fund buying and short-covering?but sold off just as sharply in the afternoon session," reported analysts Monday at Enerfax Daily. They credited that movement to short-covering following a sell-off during the previous session. "However, backwardation still rules the market as physical prices remain at a substantial premium to the NYMEX, and there still may be unknown damage to Gulf of Mexico production," the analysts said.

In London, the November contract for North Sea Brent oil declined 14¢ to $28.12/bbl on the International Petroleum Exchange. The November natural gas contract dipped 4¢ to the equivalent of $3.17/Mcf on the IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 7¢ to $28.22/bbl Friday.

For the whole week, however, OPEC's basket price averaged $28.34/bbl, up from a revised average of $28.11/bbl the previous week. So far this year, OPEC basket price has averaged $23.60/bbl, up from $23.12/bbl for all of 2001.

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