Market watch: Middle East violence boosts energy futures prices
By OGJ editors
HOUSTON, May 13 -- Energy futures prices advanced in trading Friday as renewed violence in the Middle East reawakened concerns about possible oil supply disruptions.
Israeli Prime Minister Ariel Sharon last week cut short his visit to the US and began amassing troops on the Gaza Strip border, following another suicide bombing in Israel that Israeli officials claimed was directed from groups within the Gaza Strip. That action, combined with a greater-than-expected decline in US crude inventories, triggered a rebound in energy futures prices late last week.
Iraq's announcement that it was resuming its oil exports, after a 30-day embargo failed to elicit a similar move by other Arab producers, seemed to have no effect on the market. "Iraqi exports could be at risk again in the near future as negotiations with the UN regarding the return of weapons inspectors continue and as a UN Security Council vote on the next phase of the oil-for-food program, including 'smart sanctions,' could come as early as this week," said Robert Morris, petroleum analyst at Salomon Smith Barney Inc., in a report issued Monday.
Both the June and July contracts for benchmark US light, sweet crudes gained 31¢ to $27.99/bbl and $27.23/bbl, respectively, Friday on the New York Mercantile Exchange. However, the two positions retreated in after-hours electronic trading to $27.58/bbl and $26.85/bbl, respectively.
Unleaded gasoline for June delivery jumped 1.59¢ to 79.05¢/gal during Friday's regular trading session. Heating oil for the same month rose 1.13¢ to 68.92¢/gal.
The June natural gas contract surged 30¢ to $3.75/Mcf on NYMEX. "Natural gas prices held steady last week as the Energy Information Administration took over reporting weekly storage data from the American Gas Association, with last week's storage injection in line with expectations," said Morris (OGJ Online, May 10, 2002). "Importantly, neither set of figures yet indicates a clear and discernable shift in either demand or supply over the past several weeks concurrent with persistent strength in natural gas prices."
However, he said, "We now expect Canadian (natural gas) imports to drop 1-2% in 2002 compared with last year, due largely to what appears will be lower production from the Ladyfern field in Northeast British Colombia than initially projected by the operators."
In London, futures prices for North Sea Brent oil increased on the International Petroleum Exchange, amid renewed speculation that continued conflict between Israeli and Palestinian forces would lead to some sort of oil supply disruption. Although regional key members of the Organization of Petroleum Exporting Countries have given repeated assurances of uninterrupted supplies, brokers said a premium of more than $1/bbl is built into current market prices in anticipation of a disruption.
The June Brent contract increased 44¢ Friday to $26.38/bbl on IPE, while the June natural gas contract lost 0.1¢ to the equivalent of $1.84/Mcf.
The average price for OPEC's basket of seven benchmark crudes increased Friday by 33¢ to $25.66/bbl.
The average OPEC basket price for the full week, however, was down 49¢ to $24.99/bbl. So far this year, OPEC's basket price has averaged $21.43/bbl, down from an average $23.12/bbl for all of 2001.