MARKET WATCH: Crude contract expires above $95/bbl

The price of the expiring December contract for benchmark US crude rebounded Nov. 16 above $95/bbl on the New York market where traders worried about Middle East tensions and the weak US dollar, with a slow week ahead because of the Nov. 22 US Thanksgiving holiday.

Sam Fletcher
Senior Writer

HOUSTON, Nov. 19 -- The price of the expiring December contract for benchmark US crude rebounded Nov. 16 above $95/bbl on the New York market where traders worried about Middle East tensions and the weak US dollar, with a slow week ahead because of the Nov. 22 US Thanksgiving holiday.

Saudi Arabia's Foreign Minister Prince Saud Al-Faisal voted down a proposal by Iran and Venezuela to discuss pricing crude in currencies stronger than the dollar during the Nov. 17-18 summit meeting of members of the Organization of Petroleum Exporting Countries in Riyadh. In a declaration issued Nov. 18 at that meeting, OPEC officials said, "The central role that petroleum plays in the economies of our countries, as well as the world, makes petroleum market stability essential, not only for resource conservation, but also to our economic and social development. Moreover, the role of energy, especially petroleum, in the economies of the consuming countries makes energy security essential for their sustained economic growth."

OPEC officials reiterated earlier pledges to maintain sufficient crude supplies to consuming countries and again urged control of speculators who they blame for the recent run up in crude prices. However, there was no indication that OPEC might again increase production quotas. OPEC officials earlier indicated production changes would not be discussed until the group's Dec. 5 policy meeting in Abu Dhabi.

Meanwhile, analysts at the Centre for Global Energy Studies (CGES), London, estimated OPEC oil production increased nearly 350,000 b/d in October prior to the group's agreed increase of production output became effective Nov. 1. "Iraq's oil production has risen with the resumption of exports from its northern fields and there are hopes that improved pipeline security will make these more sustainable than in the past. Iraq has signed its first term contract for supplies of Kirkuk crude for more than 3 years, signaling increased confidence in the country's ability to maintain oil flows to Ceyhan [in Turkey]," CGES reported.

CGES said, "Saudi Arabia also took an important step for price, widening significantly the discounts against benchmark grades for US customers of all the Kingdom's export streams for November liftings and increasing them further for December, when Arab Heavy will be sold fob Ras Tanura at a discount of $16.35/bbl to spot West Texas Intermediate. The increased discounts ought to make heavier Saudi Arabian grades attractive to refiners with simple hydroskimming capacity, something that the CGES has been urging for many months."

CGES expects the market to remain tight until the increased production becomes evident in larger imports of crude in major oil-consuming regions and until commercial inventories start to rise. "Signs that the global economy may be heading for a slowdown are undermining longer-term forecasts of oil demand growth, suggesting that prices could fall sharply next year. The path of oil prices over the coming months will be greatly influenced by how OPEC reacts to any downward correction. Saudi Arabia's decision to reduce the relative price of its oil suggests that the Kingdom accepts the need for the oil price to come down, but other, more hawkish, members of OPEC hold very different views," said CGES analysts.

Energy prices
The December crude contract for US light, sweet crudes expired Nov. 16 at $95.10/bbl, up $1.67 for the day the New York Mercantile Exchange. The more-active new front-month January contract gained $1.77 to $93.84/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.66 to $95.10/bbl. Heating oil for December delivery increased 2.84¢ to $2.59/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) escalated by 3.92¢ to $2.38/gal.

The December natural gas contract jumped 30.1¢ to $8/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 4¢ to $7.28/MMbtu.

In London, the January IPE contract for North Sea Brent increased $1.39 to $91.62/bbl. Gas oil for December gained $11.75 to $819.25/tonne.

The average price OPEC's basket of 12 benchmark crudes increased 53¢ to $87.54/bbl. So far this year, OPEC's basket price has averaged $66.61/bbl, up from $61.08/bbl for all of 2006.

Contact Sam Fletcher at samf@ogjonline.com.

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