Market watch: Oil futures prices drift lower on London market

With the New York Mercantile Exchange closed for the Fourth of July holiday and no new bullish indicators, futures prices for North Sea Brent oil drifted lower Thursday on the International Petroleum Exchange in London.
July 5, 2002
3 min read

By OGJ editors

HOUSTON, July 5 -- With the New York Mercantile Exchange closed for the Fourth of July holiday and no new bullish indicators, futures prices for North Sea Brent oil drifted lower Thursday on the International Petroleum Exchange in London.

The August Brent contract dropped 29¢ to $25.55/bbl on the IPE. Brokers noted that support for Brent futures prices has remained firm above $25.50/bbl earlier this week and would likely settle at that level Friday, barring any unforeseen bearish influence.

The August natural gas contract dipped by 0.8¢ Thursday to the equivalent of $2.15/Mcf on the IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 16¢ to $24.86/bbl Thursday.

NYMEX trading was thin and mixed Wednesday ahead of the July 4 holiday. The August contract for benchmark US light, sweet crudes gained 3¢ to $26.80/bbl, but the September contract dipped by 1¢ to $26.68/bbl.

Heating oil for August delivery inched up 0.06¢ to 68.77¢/gal, while unleaded gasoline for the same month lost 0.38¢ to 78.6¢/gal. The August natural gas contract also dipped by 0.3¢ to $3.14/Mcf Wednesday on the NYMEX.

Meanwhile, United Nations officials reported Iraqi oil exports under the UN-administered oil-for-aid program totaled 8 million bbl last week, with revenue amounting to 190 million euros, or $185 million. That was up slightly from exports of 7.7 million bbl the previous week.

Despite increased exports, UN officials said, the program faces a persistent shortfall of funds for more than 991 humanitarian supply contracts valued at $2.2 billion that already have been approved. The affected goods and services include food, electricity, housing, agriculture, health, communications, education, water, and sanitation. UN officials said another 2,170 contracts valued at $5.3 billion are on hold.

Iraq's oil production averaged an estimated 1.63 million b/d during June, said Tyler Dann, energy analyst for Banc of America Securities LLC. Iraq's underproduction is due at least in part to "a general lack of maintenance over the last few years . . . that has left Iraqi oil fields and export infrastructure in a state of disrepair, likely reducing Iraq's ability to produce oil in the near future," Dann said in a mid-week report.

"This has been compounded by illegal surcharges imposed by (Iraqi President) Saddam (Hussein) in late 2001, in the form of a 30¢/bbl charge to buyers of Iraqi oil exports," he said. "Finally there is the issue of retroactive pricing policy imposed by the UN, which imposes an incremental burden on trading convenience and (adds) to uncertainty in the market."

Oil production from the other 10 OPEC countries is expected to "remain roughly flat" at 23.15 million b/d in July before ramping up through the end of this year. Dann said, "OPEC has three cards with which to play the production increase." It may:
-- Hike official quotas at its September meeting.
-- Call an extraordinary meeting before September to increase quotas, if warranted by market demand or pricing.
-- Keep official quotas flat, while permitting members to leak additional barrels of oil into the world market "in a coordinated fashion."
The latter strategy is most likely to be employed in the near term, Dann said.

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