Market watch, Sept. 25

Energy futures prices plunged Friday in a preemptive reaction by traders even before US President Bill Clinton announced plans to release 30 million bbl of emergency crude supplies from the nation's Strategic Petroleum Reserve. Analysts expect markets to remain bearish over the next 30 days as the Clinton administration pours more oil into world markets in what is widely interpreted as a political move.


Energy futures prices plunged Friday in a preemptive reaction by traders even before US President Bill Clinton announced plans to release 30 million bbl of emergency crude supplies from the nation's Strategic Petroleum Reserve (SPR).

Analysts expect markets to remain bearish over the next 30 days as the Clinton administration pours more oil into world markets in what is widely interpreted as a political move to boost election bids by Vice-President Al Gore, the Democratic nominee for president, and Senate-hopeful First Lady Hillary Clinton.

The October contract for unleaded gasoline on the New York Mercantile Exchange fell 4.44� to 93.96�/gal, while home heating oil for the same month was down 4.41� to 95.48�/gal.

The November contract for benchmark US light, sweet crudes dropped $1.32 to $32.68/bbl, while the December contract lost $1.14 to $32.27/bbl. That fall-off accelerated in after-hours electronic trading following Clinton's announcement, with both contracts down to $31.45/bbl and $31.17/bbl, respectively.

Even the October contract for natural gas pulled back by 15.6� Friday to $5.13/Mcf on the NYMEX.

In London, the November contract for North Sea Brent fell by $1.48 to $31.25/bbl. The October natural gas contract also lost 22� to the equivalent of $3.21/Mcf on the IPE. Brokers said Friday they expected near-month oil prices to fall to $30/bbl or even lower within the next few days.

However, in primarily technical trading early Monday, Brent crude had rebounded by 80� from Friday's close to $32.05 on the IPE.

On the Singapore exchange, the November Brent crude oil contract was down by $1.48 to $31.25/bbl Monday, with trading unusually restrained just before the start of the 3-day Asia-Pacific Petroleum Conference.

US Energy Secretary Bill Richardson claimed the SPR release is aimed at improving inventories of home heating oil, which are 40% below year-ago levels on the East Coast and down nearly 65% in New England.

However, industry officials report refineries are already operating at full capacity to process distillates�including heating oil�with no shortage of crude supplies.

Al�odr�ez Araque, Venezuela's energy minister and conference president for the Organization of Petroleum Exporting Countries, said he expects the release of SPR oil to have only a temporary effect on markets, since refineries remain bottlenecked.

He noted that OPEC members are scheduled to review market situations at their Nov. 12 meeting in Vienna and might agree to another increase in production.

Just prior to a meeting of government heads from the various cartel members this week in Caracas, OPEC Secretary General Rilwanu Lukman called for cooperation and collaboration among oil producers and consumers.

He said OPEC members are working to bring world oil prices down to around the cartel's target price of $25/bbl. However, Lukman stressed, "We are not going to allow ourselves to be pushed to put more barrels onto the market than are necessary."

Earlier this month, OPEC agreed to boost production by 800,000 b/d, starting in October, although some members claimed at the time that amount is more than is justified by world demand.

The average price for OPEC's basket of seven crudes was down by $1.49 to $29.76/bbl Friday.

However, the OPEC's average basket price was up to $32.40 for the week, from an average $31.48/bbl the previous week. So far this year, OPEC's basket price has averaged $27.17/bbl, compared to $17.47/bbl in all of 1999 and $12.28/bbl in 1998.

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