MARKET WATCHCrude prices steady through holiday

July 5, 2006
Holiday closure of the New York Mercantile Exchange may have restrained oil prices, analysts said.

Sam Fletcher
Senior Writer

HOUSTON, July 5 -- Closure of the New York Mercantile Exchange July 3-4 probably kept energy prices from climbing higher as 40 million people were expected to crowd US highways during the Fourth of July holiday, analysts said.

"Oil prices are hovering just below $74/bbl as talks between the European Union and Iran were postponed from July 5 to July 12," said analysts July 5 at the Houston office of Raymond James & Associates Inc. "Additionally, geopolitical tensions continue to brew as North Korea has launched its seventh test missile into the Japan Sea. Some have said the long-range missiles have the capability to hit the US."

The UN Security Council was scheduled to meet July 5 to discuss North Korea's actions.

In London, the August IPE contract for North Sea Brent crude slipped by 12¢ to $73.39/bbl on July 3. The July contract for gas oil advanced by $2.50 to $646.25/tonne, however.

The average price for the Organization of Petroleum Exporting Countries lost 35¢ to $67.85/bbl on July 4.

Additional crude
Meanwhile, world oil markets so far have failed to recognize the combined impact of the renewed Iraqi exports and the new flow of Azeri light crude into export facilities in Ceyhan, Turkey, said Olivier Jakob, managing director, Petromatrix GMBH in Zug, Switzerland.

The combination of the new Azeri supply through the Baku-Tbilisi-Ceyhan pipeline and renewed Iraqi exports "add up to 600,000 b/d of additional short-haul crude arriving in the Mediterranean in July," Jakob said. "From the loading programs, the combined flows of Azeri and Iraq [oil] will amount already to 20.2 million bbl for July, and this could increase further."

Kazakhstan agreed June 16 to supply as much as 25 million tonnes/year of oil for the 1,800-km BTC line, which passes through Azerbaijan, Georgia, and Turkey (OGJ Online, June 19, 2006).

Azerbaijan International Operating Co., a 10-company consortium headed by operator BP Group LLC, began oil production Dec. 30, 2005, from West Azeri (WA) field, part of the Azeri-Chirag-Gunashli (ACG) complex in the Caspian Sea off Azerbaijan (OGJ Online, June 12, 2006).

"The BTC flow is a new flow and will be a steady and secure one. The Iraqi flow cannot be described as steady due to the security issues which are still to be proven as resolved. While the Iraqi flows cannot be fully priced in market expectations (due to security) it will bring bearish spot pressure as long as the flows are not disrupted," said Jakob.

The combined increase of 600,000 b/d of Azeri and Iraqi crude "is not a small volume and has not been priced in, yet it will weigh on the physical market," he said. "These combined flows have the potential to reach at least 800,000 b/d by the end of the year."

Iraq last week resumed shipments from its northern Kirkuk oil field to Ceyhan export facilities through a pipeline now under guard by the Iraqi army. A special security force previously was in charge of the pipeline, and crude shipments from Kirkuk to Ceyhan had been suspended for almost a year because of persistent sabotage.

Shipments again were suspended July 1 due to reported technical difficulties but resumed July 4. Iraq currently produces 2.5 million b/d of crude and exports 1.8-1.9 million b/d, the highest level since the war, officials said. That includes 1.5 million b/d previously exported through Iraq's southern terminal.

Contact Sam Fletcher at [email protected].