MARKET WATCHIran seizes sailors, spooks energy markets

Crude futures prices were reported at year-to-date highs in early trading Mar. 23 after naval units of Iran's Revolutionary Guard seized 15 British sailors and marines who had boarded a merchant ship in Iraqi waters of the Persian Gulf.

Mar 23rd, 2007

Sam Fletcher
Senior Writer

HOUSTON, Mar. 23 -- Crude futures prices were reported at year-to-date highs in early trading Mar. 23 after naval units of Iran's Revolutionary Guard seized 15 British sailors and marines who had boarded a merchant ship in Iraqi waters of the Persian Gulf.

British officials summoned the Iranian ambassador to the Foreign Office in London where they demanded the immediate and safe return of British personnel and equipment.

The incident reportedly occurred just outside the Shatt al-Arab waterway dividing Iraq and Iran. Jurisdiction over that area has long been contested between the two countries. Britain's Defense Ministry said the British Navy personnel made a routine boarding of merchant shipping in Iraqi territorial waters and had completed inspection of the ship when they were confronted by Iranian military vessels.

Iranian officials had no immediate comment. Iran is celebrating its New Year holiday and almost all government offices are closed.

On Mar. 22, the United Nations Security Council drafted a resolution to freeze the assets of a state-owned Iranian bank as well as restrict some exports from the country if it does not comply with suspension of its nuclear program. A vote on that resolution is expected Mar. 24. "We have not seen yet confirmation that the Iranian president will be there tomorrow to present his views," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. Iran's president earlier requested an audience with the UN Security Council (OGJ Online, Mar. 23, 2007). "The Saturday vote is somehow quicker than we would have expected, and will make it an 'Iranium' weekend," Jakob said. The political uncertainties could drive energy prices higher in the Mar. 23 session as traders try to protect market positions over the weekend.

Meanwhile, Iraqi Deputy Prime Minister Salam Zaubai was undergoing surgery Mar. 23 at a US military hospital after being injured in a double bombing in Baghdad in which nine people were killed. Iraqi police said a suicide bomber blew himself up and a car bomb exploded as Zaubai was leaving a mosque near his home in the Iraqi capital.

Energy prices
Crude energy prices jumped to a 2-week high Mar. 22 amid renewed evidence of continued strong demand for petroleum products. "Oil posted gains of nearly 3.5%, supported partly by the regular draws in gasoline stocks, which were higher than expected in the last 6 weeks," said analysts in the Houston office of Raymond James & Associates Inc. "Crude also rose as a result of overall strength in the broader markets, which rallied appreciably on eased concerns of an economic slowdown."

The crude futures market's price rally following the weak expiry of the April contract "was triggered by the combination of the equity rally and a weak dollar and quickly broke resistance lines back towards the highs of the previous range," said Jakob at Petromatrix. "What we have seen recently is very strong support around $59.20-59.40/bbl [for benchmark US crude futures] while resistance lines [to higher prices] have been more easily broken," he said.

The May contract for benchmark US light, sweet crudes closed at $61.69/bbl, up $2.08 for the day, after trading as high as $62.05/bbl in the Mar. 22 session of the New York Mercantile Exchange. The June contract escalated by $1.91 to $63.02/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., shot up $3.28 to $60.65/bbl. Heating oil for April delivery climbed 5.34¢ to $1.72/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) gained 2.26¢ to $1.96/gal.

The April natural gas contract increased 16¢ to $7.32/MMbtu on NYMEX. On the US spot market, natural gas at Henry Hub, La., gained 22¢ to $7.06/MMbtu. "We believe that the supply overhang in Asia and Europe has sent an influx of LNG imports into the US, which has offset price-driven fuel switching. Recent changes in pricing incentives back to natural gas from crude derivatives over the past couple of weeks should drive switching back towards natural gas if it holds," said Raymond James analysts.

Also adding to the strength of natural gas prices is the emerging hurricane outlook. Raymond James said, "Tropical Storm Risk in London just released its estimates for the 2007 Atlantic hurricane season, which includes an expected 17 tropical storms, 9 of which will develop into hurricanes and 4 of these will be major hurricanes. Based on climate indicators, TSR believes that hurricane activity will be 75% above the average for 1950-2006. For reference, a normal hurricane season consists of 10 tropical storms, 6 of which will develop into hurricanes and 2 of these will develop into major, destructive hurricanes."

In London, the May IPE contract for North Sea Brent crude increased by $1.74 to $62.51/bbl. The April gas oil contract climbed $9 to $537.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes jumped by $1.02 to $57.78/bbl on Mar. 22.

Contact Sam Fletcher at samf@ogjonline.com.

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