MARKET WATCH: Oil price rises amid geopolitical tensions

Paula Dittrick
Senior Staff Writer

HOUSTON, Jan. 5 -- Crude oil futures prices in New York and London rose during Jan. 2 trading amid rising geopolitical tensions.

Analysts with Barclays Capital said violence in the Middle East and disputes between Russia and Ukraine provided support for higher oil prices.

"Oil prices have started the year on a strong note," Barclays said. "While the violence in the Gaza strip does not affect any oil supplies directly, the market fears involvement from other countries like Iran could aggravate the situation."

On Jan. 4, an Iranian military commander suggested Islamic countries cut oil exports, Barclays said, adding "this is unlikely to echo far in gulf countries already engaged in sharp cuts to support prices.

"Meanwhile, Russian gas supplies to the Czech republic have dropped by 5% as a result of its standoff with Ukraine," Barclays said.

Analysts are monitoring gas supplies in Turkey, Poland, Romania, Bulgaria, and Hungary. Reuters reports European energy companies have enough gas supplies for several days.

Saboteurs in the Niger Delta used dynamite to partially destroy an oil pipeline operated by Agip, a subsidiary of ENI. It was unclear as of Jan. 5 whether any production had been disrupted.

Agip issued no immediate comment on the scale of damage caused by the attack, which hit the Odimodi-Ogulagha part the pipeline in Nigeria's Delta state.

No group immediately claimed responsibility. Nigerian regional army officials told the Associated Press that local youth rather than militants were believed responsible.

US, China to boost oil inventories
The US Department of Energy said it will start buying crude oil to replenish the Strategic Petroleum Reserve. SPR was heavily drawn down following Hurricanes Katrina and Rita in 2005.

From May 2008 through yearend, DOE was prohibited by law from buying oil for SPR. Now, DOE plans to buy 12 million bbl of crude. Deliveries are being sought for February, March, and April.

"DOE plans to take advantage of the recent sharp decline in crude oil prices to enter the market," said a DOE release issued Jan. 2.

Barclays said DOE's announcement comes days after the Chinese government indicated it will take advantage of lower oil prices to boost imports and build reserves.

Zhang Guobao, director of the China National Energy Administration, wrote in the People's Daily newspaper that China should increase its oil reserves.

Zhang said China will "encourage companies to utilize idle storage capacity to increase inventories."

Energy prices
The February contract for benchmark US light, sweet crudes rose $1.74/bbl to $46.34/bbl on Jan. 2 on the New York Mercantile Exchange. The March contract climbed $1.62 to $50.21/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., rose $1.94 to $46.34/bbl. The January contract for reformulated blend stock for oxygenate blending rose 4.85¢ to $1.11/gal on NYMEX. Heating oil for the same month climbed 3.8¢ to $1.48/gal.

The February natural gas contract rose 34.9¢ to $5.971/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 18.5¢ to $5.435/MMbtu.

In London, the February IPE contract for North Sea Brent crude gained $1.32 to $46.91/bbl. Gas oil for January rose by $9.25 to $427.75/tonne.

The average price for Organization of Petroleum Exporting Countries daily basket stood at $39.95/bbl Jan. 1, up $4.37 from the Dec. 31 price.

Effective Jan. 1, the OPEC basket excluded Indonesian "Minas" crude, OPEC said.

Contact Paula Dittrick at paulad@ogjonline.com.