MARKET WATCHLebanon ceasefire reduces energy prices

Sam Fletcher
Senior Writer

HOUSTON, Aug. 15 -- Crude futures prices fell to a 2-week low as a United Nations-sponsored ceasefire in Lebanon went into effect and BP PLC said it could keep half of its Prudhoe Bay oil field in production during the repair of transit pipelines.

Some observers doubt that the ceasefire between Israel and the undefeated Hezbollah guerillas will hold, however. "It will not take very long before we see renewed ground fighting," predicted Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland (OGJ Online, Aug. 14, 2006).

Meanwhile, Societe Generale (SG) reported US West Coast refiners "have been snapping up cargoes" of suitable crudes from Oman, West Africa, and "better-quality" Urals crude and "frantically chartering" tankers to replace lost Prudhoe Bay oil supplies.

SG Analyst Deborah White said: "What is at stake is the 86,000 b/d of gasoline that SG estimates [Los Angeles] refineries normally made from the [Alaska North Slope crude] they ran. West Coast primary stocks of gasoline can be drawn relatively little—2 million bbl, we estimate—cold comfort in the face of West Coast gasoline demand of 1.6 million b/d, 1.1 million b/d of that reformulated gasoline (most ultraclean California Air Resources Board quality), and a potential gasoline shortage centered in highly automobile-dependent Los Angeles."

She said, "SG advises the affected refiners to immediately persuade the US Strategic Petroleum Reserve to grant emergency loans of crude only 2 weeks from Los Angeles," vs. longer timelines for replacement imports.

The US Department of Energy has offered to release supplies from the Strategic Petroleum Reserve, but no refiner has yet requested a loan. Jakob earlier advised against diverting SPR crude to the West Coast while the Gulf Coast is still exposed to the annual hurricane season (OGJ Online, Aug. 9, 2006).

In other news, Iraqi officials say that country's crude production is back to 2.5 million b/d with the repair and reopening of its northern pipeline to an export terminal in Turkey. Iraq's Oil Minister Hussain al-Shahristani said there are plans to raise Iraq's oil production to 2.9-3 million b/d by yearend and by 500,000 b/d/year to 4.5 million b/d through 2010. Earlier efforts to boost Iraq's crude output have proven futile, however.

Energy prices
The September contract for benchmark US sweet, light crudes traded at $72.60-73.95/bbl before closing Aug. 14 at $73.53/bbl, down 82¢ for the day on the New York Mercantile Exchange. The October contract dropped $1.04 to $74.95/bbl.

On the US spot market, West Texas Intermediate crude at Cushing, Okla., was down by 80¢ to $73.56/bbl. Gasoline for September delivery fell by 7.38¢ to $1.99/gal on NYMEX. Heating oil for the same month lost 2.59¢ to $2.01/gal.

The September natural gas contract dropped 35.6¢ to $6.91/MMbtu on a mild weather forecast and lack of any hurricane-related concerns. "The recent run-up in the price of natural gas was largely due to extreme (record-setting) heat experienced over the course of the past 3 weeks, which drove two unprecedented withdrawals from natural gas storage," Raymond James analysts said. "With that sustained heat wave now behind us and the forecast for this upcoming week to arrive approximately 11% more moderate vs. last year, natural gas is lacking the bullish fundamental (i.e., weather) drivers to push prices higher in the very near term. However, as we all are aware, weather can change day to day."

In London, the September IPE contract for North Sea Brent crude fell by $1.33 to $74.30/bbl. The September gas oil contract dropped $13 to $638.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes lost 80¢ to $69.54/bbl on Aug. 14.

Contact Sam Fletcher at [email protected].