MARKET WATCHMay crude tops $68/bbl on NYMEX

April 11, 2006
May crude futures prices shot above $68/bbl Apr. 10 to the highest level on the New York market in 8 months.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 11 -- May crude futures prices shot above $68/bbl Apr. 10 to the highest level on the New York market in 8 months as traders again focused on potential disruptions of global oil supplies.

The escalating crude market pulled other energy commodities along with it, wiping out modest losses from the Apr. 7 session.

Although potential threats to crude supplies from Iran, Iraq, and Nigeria are nothing new, traders seem now to see those issues "as potentially serious complications rather than mere will-of-the-wisps," said Paul Horsnell of Barclays Capital Inc., London. The oil market faces serious geopolitical problems that "prices are perhaps only now even beginning to reflect adequately," he said.

So far this month, Iraq's crude oil exports have increased to 1.64 million b/d, up from an average 1.44 million b/d in March. That increase was the result of improved weather at the Basra export terminal in south Iraq and the addition of tugs to help move tankers, said government officials.

Iraq's southern oil fields are producing an average 1.8 million b/d, while "production problems" have restricted output from the northern fields to 300,000 b/d. Over the weekend, Iraq moved 118,000 bbl of crude through its export pipeline to Ceyhan, Turkey. It was the first shipment in almost 3 months. Persistent sabotage kept that pipeline inoperable during most of 2005 and into 2006.

The market's previously "mild concern that the logistical system was not working as smoothly as it used to has now grown into something more profound," Horsnell said. "It appears to us as if the base case for most of the market is now that logistical systems are highly stressed, are insufficient for the task given past neglect, are hard to improve in the short-term, and are now incapable of handling all bar the most trivial of shocks without generating a significant degree of market friction." Add the specification changes for gasoline in key US markets, forecasts of another active hurricane season this year, along with other stresses, and "the ingredients are there for support at higher price levels combined with higher levels of volatility," he said.

Meanwhile, the continued climb of crude prices above $60/bbl is "regarded as unfortunate but not calamitous by consumer governments and has been greeted with somewhat more relaxation by producer governments than some previous milestones," said Horsnell in an Apr. 5 report. "Generally, the key market participants have begun to come to terms with higher prices and in particular to start the transition to accepting that 'higher' is not necessarily the same as 'high,'" he said.

Energy prices
The May contract for benchmark US sweet, light crudes jumped by $1.35 to $68.74/bbl Apr. 10 on the New York Mercantile Exchange, while the June contract climbed by $1.47 to $70.11/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by $1.35 to $68.75/bbl. Heating oil for May delivery gained 6.28¢ to $1.95/gal on NYMEX. Gasoline for the same month increased by 3.24¢ to $2.01/gal. The May natural gas contract bumped up 13.9¢ to $6.88/MMbtu.

In London, the May IPE contract for North Sea Brent crude gained $1.64 to $68.75/bbl. Gas oil for April increased by $9.75 to $591.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes was up by 85¢ to $62.65/bbl on Apr. 10. So far this year, OPEC's basket price has averaged $58.02/bbl, compared with an average $50.64/bbl for all of 2005. On Apr. 3—the first trading day of the second quarter in which crude demand is usually slack—OPEC's basket price of $61.82/bbl set "all-time highs in both dollar and euro terms," said Horsnell.

Contact Sam Fletcher at [email protected].