MARKET WATCHSimmering Middle East conflicts push up energy prices

Energy prices continued to escalate Mar. 29, with crude futures prices climbing to a near-7-month high above $66/bbl in the New York market as UK Prime Minister Tony Blair said his government won't negotiate for the 15 British sailors and marines seized by Iran Mar. 23 in the Persian Gulf.

Mar 30th, 2007

Sam Fletcher
Senior Writer

HOUSTON, Mar. 30 -- Energy prices continued to escalate Mar. 29, with crude futures prices climbing to a near-7-month high above $66/bbl in the New York market as UK Prime Minister Tony Blair said his government won't negotiate for the 15 British sailors and marines seized by Iran Mar. 23 in the Persian Gulf.

Iran wants UK officials to say that the sailors and marines violated Iranian waters when they boarded a merchant ship to inspect for possible smuggled goods just outside the Shatt al-Arab waterway dividing Iraq and Iran. However, UK officials maintain data from a position-tracking satellite prove the British personnel were 1.7 nautical miles inside Iraqi waters when seized by naval units of Iran's Revolutionary Guard.

Meanwhile, Iran has shown videos of two of the sailors, including the lone woman in the group, apologizing for violating Iranian territory. Britain has frozen most bilateral contacts with Iran and referred the problem to the United Nations Security Council, which has expressed grave concern over Iran's actions. Iran insists that the matter concerns only it and the UK and should not involve the UN.

UK officials were scheduled to meet with European Union representatives Mar. 30 to urge EU members to join in the isolation of Iran.

"Iran will continue to lead the headlines," warned Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, in a Mar. 30 report. "Even if all the sailors were to be released, one needs to question what would be the rule of engagement now in the region; the two sides are likely to test each other again, and the risk of future military engagement between the two has increased significantly on the back of this incident."

Despite market concerns sparked by Iran's confrontations with the UK and with other members of the UN Security Council over Iran's refusal to curb its nuclear program, Iran's production and export of crude have not been affected. Nor are they likely to be, say some market observers, since Iran needs the income from those exports as much as the rest of the world needs its oil.

Meanwhile, French workers failed to reach an agreement Mar. 29 to end the strike at the Fos-Lavera oil terminal, the world's third-largest port for refined oil products. If there is no resolution of the strike during Mar. 30 negotiations, "some French refineries say they will completely shut down their already reduced operations as no product movement can occur (57 vessels are stranded outside the port)," said analysts in the Houston office of Raymond James & Associates Inc. "This is more serious than a reduction in refining for the risks associated with a facility restart," analysts said.

Energy prices
The May contract for benchmark US light, sweet crudes jumped by $1.95 to $66.03/bbl Mar. 29 on the New York Mercantile Exchange. The June contract climbed by $1.60 to $67.28/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.95 to $66.04/bbl. The April contract for reformulated blend stock for oxygenate blending (RBOB) shot up by 7.83¢ to $2.14/gal on NYMEX. Heating oil for the same month gained 4.98¢ to $1.88/gal.

The May natural gas contract dropped 6.3¢ to $7.61/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 14.5¢ to $7.35/MMbtu.

In London, the May IPE contract for North Sea Brent crude escalated by $2.10 to $67.88/bbl. However, gas oil for April slipped by 50¢ to $575.75/tonne.

The Vienna office of the Organization of Petroleum Exporting Countries was closed for holiday Mar. 30, so there was no price update for OPEC's basket of 11 benchmark crudes.

Contact Sam Fletcher at samf@ogjonline.com.

More in General Interest