MARKET WATCHOil prices fall despite Middle East, Africa turmoil
Sam Fletcher
Senior Writer
HOUSTON, Aug. 20 -- Energy futures markets in New York and London ignored terrorist attacks in the Middle East and civil strife in Nigeria while continuing Tuesday to bid down prices for oil and petroleum products on the basis of perceived adequate supplies.
Traders concluded that operations at four US and five Canadian refineries were not as badly disrupted by last week's massive electrical power failure as was first feared. However, Andrew C. Fairbanks, vice-president, Merrill Lynch & Co. Inc., New York, said almost 4 million bbl of production—including 2 million bbl of gasoline and 800,000 bbl of distillate—were lost, "even if the plants come back online perfectly." That, he said, would make "an already tight market even tighter" (OGJ Online, Aug. 19, 2003).
Terrorism escalates
Meanwhile, political analysts are speculating that a suicide bomb attack Tuesday in Baghdad that killed 20 people, including United Nations envoy Sergio Vieira de Mello, might forge a closer alliance between UN and US officials in dealing with Iraq. The end result could increase the UN's role in pacifying Iraq, including an enlarged and more international peacekeeping force.
It appears that US officials' previous plans to increase Iraq's oil production to 1.5 million b/d by the end of this year are impossible without a massive improvement in security. Iraq currently is producing less than 500,000 b/d.
A second terrorist bombing Tuesday that killed 18 people in Israel seems to have set back, if not derailed, peace efforts in that area. Israel immediately cut off contacts with Palestinian officials following that attack. The bombing was described as one of the worst attacks on Israel in 3 years.
In Nigeria, Shell Petroleum Development Co. closed its western divisional head office in the oil city of Warri as Nigerian troops moved in to separate warring Ijaws and Itsekiris ethic groups during the fifth day of fighting. Eight people were confirmed dead, but other sources said the death toll could exceed 30.
Shell and ChevronTexaco Corp. said the fighting has not yet affected their oil operations in Nigeria. However, a similar clash between the Itsekiris and Ijaws in March forced companies to shut in more than 500,000 b/d of Nigerian oil production.
Energy prices
Analysts said the energy futures markets failed to react to those conflicts Tuesday because they were "already extremely overbought." The investment funds and speculators who currently hold large positions in the energy futures are more inclined to sell into rallies and to liquidate stale long positions that obligate the holder to take delivery, rather than buy, they said.
The September contract for benchmark US light, sweet crudes dropped 19¢ to $30.70/bbl Tuesday on the New York Mercantile Exchange. The October position also closed at $30.70/bbl, down 18¢ for the day.
On the cash spot market Tuesday, West Texas Intermediate crude lost 20¢ to $30.88/bbl.
Heating oil for September delivery on NYMEX retreated by 0.31¢ to 79.18¢/gal Tuesday. Unleaded gasoline for the same month slipped by 0.04¢ to 98.77¢/gal.
However, the September natural gas contract gained 8.1¢ to $4.96/Mcf on NYMEX. The October gas contract rose by 7.4¢ to $4.99/Mcf, but other months were mixed.
Contract prices for the 2 front months were "buoyed by a firmer cash market and warm mid-week forecasts for the Northeast and Midwest that should increase air conditioning demand," said analysts Wednesday at Enerfax Daily.
"Warmer weather forecasts for the Northeast and Midwest helped firm cash prices and futures followed, but the heat is expected to be short-lived, with more seasonal temperatures predicted for later this week and next week," analysts reported.
Other sources noted that near-month natural gas futures prices still are up 3.7% for this year, despite a 21% drop since June 1.
In London, the October contract for North Sea Brent oil declined by 19¢ to $28.47/bbl Tuesday on the International Petroleum Exchange. The September natural gas contract dipped by 1.5¢ to the equivalent of $2.38/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 38¢ to $27.94/bbl Tuesday, dropping back into the group's price target of $22-28/bbl for the first time since July 31.
Contact Sam Fletcher at [email protected]