MARKET WATCHCrude prices slip as Lebanese peace holds

Sam Fletcher
Senior Writer

HOUSTON, Aug. 16 -- Crude prices continued to slip Aug. 15 as the ceasefire between Israel and the Hezbollah guerillas held for the second day.

"Concerns over the disruption of oil are slowly dissipating due to the Lebanon ceasefire order," said analysts at the Houston office of Raymond James & Associates Inc. "Also exacerbating the downward pressure on oil is the news that the Organization of Petroleum Exporting Countries has revised its 2006 forecast for world crude demand because of less consumption by industrialized countries, including the US. Specifically, world oil demand is now 84.5 million b/d, which is 80,000 [b/d] less than last month's forecasts."

Some analysts anticipated a drop in US crude inventories as BP PLC shut in 200,000 b/d of production from the Prudhoe Bay oil field while it repairs pipeline corrosion. However, Societe Generale earlier calculated that West Coast refiners would receive their last full shipment of Alaska's North Slope crude on Aug. 17, before the disruption is felt.

US inventories
The Energy Information Administration said Aug. 16 that commercial US inventories of crude fell by 1.6 million bbl to 331 million bbl during the week ended Aug. 11. Gasoline stocks dropped 2.3 million bbl to 205.4 million bbl during the same period, but distillate fuel inventories increased by 800,000 bbl to 133.2 million bbl, with a large increase in ultralow-sulfur diesel fuel offsetting decrease in regular diesel fuel and heating oil.

Imports of crude into the US declined by 143,000 b/d to 10 million b/d during that period. Input of crude into US refineries dipped by 30,000 b/d to 15.6 million b/d with facilities operating at 91.5% of capacity. Production of both gasoline and distillate fuel increased slightly to 9.2 million b/d and 3.9 million b/d, respectively.

In other news, the Nigerian government ordered round-the-clock security patrols in the Niger Delta and threatened to sanction international oil companies if they ransom employees kidnapped by local militants. Officials said militants are still holding 6 hostages after 10 were recently released. Those workers were kidnapped in five separate incidents over a 2-week period as militants stepped up raids of oil facilities.

Energy prices
The September contract for benchmark US light, sweet crudes slipped by 48¢ to $73.05/bbl Aug. 15 on the New York Mercantile Exchange. The October contract lost 62¢ to $74.33/bbl.

On the US spot market, West Texas Intermediate crude was down by 50¢ to $73.06/bbl. Heating oil for September delivery gained 0.88¢ to $2.02/gal on NYMEX, however. Gasoline for the same month inched up by 0.11¢ but was virtually unchanged at $1.99/gal.

The September gas contract dropped 5.2¢ to $6.86/MMbtu on NYMEX. Raymond James analysts said, "Although weather is moderating, we expect that there will be a slight carry-over effect from last week's extreme heat, which may help lower the injection number" to be reported Aug. 17 by EIA.

In London, the September IPE contract for North Sea Brent crude lost 50¢ to $73.80/bbl. However, gas oil for the same month escalated by $11 to $649.50/tonne.

The average price for OPEC's basket of 11 benchmark crudes fell by 53¢ to $69.01/bbl on Aug. 15.

Contact Sam Fletcher at [email protected].