Market watch: Oil prices reach highest level since Persian Gulf War
By OGJ Editors
HOUSTON, Feb. 27 -- Crude oil prices Wednesday reached their highest level since the Persian Gulf War on the New York Mercantile Exchange. The April contract for benchmark US light, sweet crude soared $1.64 to settle at $37.70/bbl.
At one point Wednesday, NYMEX crude for April delivery reached $37.93/bbl, the highest level since October 1990 when oil peaked at $41.15/bbl after Iraq invaded Kuwait. The May contract settled up 92¢ at $35.34/bbl.
Traders attributed the rise to low US inventory numbers and also to an increasing likelihood that war in Iraq appeared inevitable. The market also benefited from forecasts of extended period of below-normal temperatures during March.
Heating oil hit an all-time high for the second time this week. It closed Wednesday at $1.1549/gal, up 3.23¢, compared with $1.1535/gal Monday on NYMEX, surpassing the previous record of $1.15/gal in November 1979.
Energy crisis
"The US is facing an energy crisis" that "hasn't come suddenly," said Paul Horsnell, head of energy research for J.P. Morgan Chase & Co., London.
"Twice within 2 years, the (US natural gas) market to achieve balance has had to spike prices to levels where immediate and severe demand destruction occurs. That is not the sign of a market that is either working well or playing a constructive role in the US economy," Horsnell said in a report Wednesday.
The 7.7 million bbl drop in US commercial inventories of oil and petroleum products to 898 million bbl, reported Wednesday by the Energy Information Administration, also is "really scary stuff," he said.
"In the year to date, total (US oil and petroleum products) inventories have fallen by 57 million bbl, which is 38.7 million bbl more than would be expected on a normal pattern," said Horsnell. "Put another way, a normal pattern for the year to date would be an inventory draw of under 400,000 b/d, and the US industry has instead sustained an average fall of over 1.1 million b/d."
Among US stocks of petroleum products, distillates were the hardest hit. "Last week we doubted that heating oil inventories could fall much further before hitting minimum operating requirements," Horsnell said. "This week, a further 3.9 million bbl has disappeared, making us think we must now be getting very close to localized physical shortages and the potential for even more extreme price spikes."
Moreover, he said, "The spectacular spike in natural gas prices has raised the specter of yet more demand trying to move towards distillates, in the context of a market that really can't cope with it. Crude inventories continue to bounce along the bottom, with import flows still failing to keep up with refinery run increases in any consistent fashion."
Other prices
Natural gas prices eased from their record high of $11.89/Mcf set in overnight trading Monday on NYMEX. On Wednesday, the March contract closed at $9.133/Mcf, down 4.44¢ for the day.
Analysts at Enerfax Daily, Houston, noted that the March natural gas futures contract had ended, ending at about 60% above where it started for the month. Low storage levels of natural gas are likely to sustain higher prices, Enerfax Daily said.
The EIA reported that working gas in storage was 1.014 tcf for the week ended Feb. 21, which was a net decline of 154 bcf from the previous week. Stocks were 948 bcf fewer than last year at this time and 508 bcf below the 5-year average of 1.522 tcf.
Unleaded gasoline for March delivery on NYMEX gained 1.05¢ Wednesday to $1.0183/gal.
In London, the April contract for North Sea Brent oil rose 75¢ to $33.07/bbl on the International Petroleum Exchange. The April natural gas contract gained 0.03¢ to the equivalent of $2.67/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 26¢ to $32.49/bbl Wednesday.