MARKET WATCH Oil futures prices fall with rapid coalition advance on Baghdad

Futures prices for oil and petroleum products continued to decline Friday as the rapid advance of US-led forces toward Baghdad resurrected prospects of a quick coalition victory in the war with Iraq.

April 7, 2003

3 min read

Sam Fletcher
Senior Writer

HOUSTON, Apr. 7 -- Futures prices for oil and petroleum products continued to decline Friday as the rapid advance of US-led forces toward Baghdad resurrected prospects of a quick coalition victory in the war with Iraq.

Analysts said markets also reacted to reports Friday that Chevron Nigeria Ltd. was gradually restarting Nigerian production that it shut in earlier because of ethnic clashes in the Niger Delta area. "Operations staff and support workers are returning to the Escravos terminal in the Western Niger Delta, and a gradual return to production is beginning," ChevronTexaco Corp. announced (OGJ Online, Apr. 4, 2003).

Shell Nigeria Ltd. indicated Friday that it had restarted 18,000 b/d of crude oil production of the 320,000 b/d linked to the company's Forcados terminal that had been shut in because of widespread violence in that area (OGJ Online, Apr. 7, 2003).

Matthew Warburton, UBS Warburg LLC, New York, noted Monday that the latest reports last week on US oil inventories confirmed increased production from the Organization of Petroleum Exporting Countries, primarily Saudi Arabia, as US crude oil imports surged to record levels of 10.36 million b/d.

"With OPEC currently producing in excess of estimated (second quarter) demand, even with the loss of Iraqi volumes, the cartel continues to face a delicate balancing act in the near term," said Warburton. "However, if recent reports that Iraqi oil fields could be offline until the end of 2003 were borne out, then OPEC-10 would have to employ essentially all its capacity to cope with the estimated (fourth quarter) call on OPEC and stocks of 27 million b/d."

Although oil prices are expected to remain volatile, subject to developments in the coalition's war with Iraq, he said, "we would expect them to essentially trade within a range of $25-30/bbl (for West Texas Intermediate) until the Iraqi crisis is resolved."

Friday's closings
The May contract for benchmark US light, sweet crudes lost 35¢ to $28.62/bbl Friday on the New York Mercantile Exchange, while the June position retreated by 40¢ to $26.86/bbl. Heating oil for May delivery plunged by 0.57¢ to 72.6¢/gal. Unleaded gasoline for the same month was down 0.13¢ to 87.03¢/gal.

The May natural gas contract inched up 2.4¢ to $4.94/Mcf in lackluster trading Friday on NYMEX. "The market opened higher and spent all day trading on both sides of $4.95(/Mcf) in apparent short-covering. Marketers consolidated trading inside a 7¢ range and then hedged bets by buying May and June, and selling back months," analysts reported Monday at Enerfax Daily.

"The (gas futures) market has now closed lower 5 weeks in a row," they said. "The market seems to be in a rut, stuck in a congested area just below $5."

In London, the May contract for North Sea Brent oil dropped 82¢ to $24.68/bbl Friday on the International Petroleum Exchange. The May natural gas contract gained 3.2¢ to the equivalent of $2.58/Mcf on IPE.

The average price for OPEC's basket of seven crudes lost 62¢ to $25.38/bbl Friday. For the week as a whole, however, the OPEC basket price gained 70¢ to an average $26.57/bbl.

So far this year, the OPEC basket price has averaged $30.25/bbl, compared with an average price of $24.36/bbl for all of 2002.

Contact Sam Fletcher at [email protected]