Market watch: New York oil futures prices hit 7-week high

By OGJ editors

HOUSTON, July 15 -- Oil futures prices hit a 7-week high Friday on the New York Mercantile Exchange, and some analysts are predicting it should go even higher in the squeeze of tightening markets.

"We forecast [benchmark US oil] prices to increase by $1-3/bbl during the next few weeks," said analysts at Petral Worldwide Inc., Houston, on Thursday, just before the price jump Friday. "After late August or early September, however, fundamentals will become less bullish and will become bearish by early October. On this basis, we forecast crude oil prices to decline by $1-2/bbl."

Petral officials reported US refinery crude runs have been "higher than expected for the past few weeks and are forecast to remain at peak seasonal rates through late August." Meanwhile, the running 4-week average for crude oil imports has remained flat for 5 weeks.

That means crude oil imports likely will average 9.1 million bbl at most during July and August, less than the 9.3-9.4 million bbl needed to support current demand by US refiners. "As a result, crude oil inventories in the US are now forecast to fall below 300 million bbl by mid-August," said Petral officials.

"Speculative crude futures traders increased their net long contract positions (on NYMEX) to about 22,000 in early July from a mere 214 net long positions in mid-June," they said. "Crude oil traders are expected to continue to increase their net long contract positions during the next 4-6 weeks."

Matthew Warburton at UBS Warburg LLC, New York, said Monday he also expects non-commercial traders to add to their net long positions this week.
Reduced oil exports from Iraq under the United Nations' oil-for-aid program and the discipline employed by the other 10 active members of the Organization of Petroleum Exporting Countries in sticking close to their production quotas "are gradually tightening the physical market," said Warburton.

"Recent tanker tracking estimates show that OPEC-10 production edged-up to 23.3 million b/d in June vs. 23.1 million b/d in May. Critically, OPEC output remains less (than) estimated ... demand" for the last half of this year, said Warburton The "likelihood" of shrinking oil inventories "will support crude prices" in the third quarter, he said.

The August contract for benchmark US light, sweet crudes jumped by 65¢ to $27.48/bbl Friday on NYMEX, while the September position increased by 59¢ to $27.43/bbl, pushed primarily by concerns that labor unrest in Venezuela could lead to a strike by oil workers. Venezuela is a major supplier of crude oil exports to the US, the third largest behind Canada and Saudi Arabia, respectively, during the first quarter of this year.

Unleaded gasoline for August delivery rose 2.61¢ to 82.44¢/gal in the wake of disruptions at several US refineries. Heating oil for the same month increased by 1.53¢ to 70.54¢/gal.

However, the August natural gas contract continued to slump, down 4.3¢ to $2.79/Mcf. "With plenty of [gas] volumes in [US] storage and only moderate weather ahead for now, the bias [for natural gas prices] still remains downward," analysts at Enerfax Daily reported Monday.

"Look for a floor around $2.50-2.55[/Mcf] this week," they warned. "(A)nother small rally, either by short-covering or profit-taking by shorts, could push the market back over $3[/Mcf], but not much higher."

In London, futures prices for North Sea Brent oil remained "technically strong" above the $26/bbl mark on the International Petroleum Exchange. But brokers warned that recent gains could be short-lived without additional supportive news. They said the market is looking for signs of demand reduction after the International Energy Agency in Paris slashed its previous forecast for cumulative world demand for oil in 2002.

The August Brent contract gained 36¢ to $26.32/bbl Friday on the IPE. However, the August natural gas contract dipped by 4.4¢ to the equivalent of $2.22/Mcf.

The average price for OPEC's basket of seven crudes gained 40¢ to $25.56/bbl Friday. But over the whole week, the average basket price was down 24¢ from the previous week to $24.83/bbl.

So far this year, OPEC's basket price has averaged $22.37/bbl, compared with an average of $23.12/bbl for all of 2001.