MARKET WATCH: Oil prices up slightly; oil pipelines restarted

Crude prices increased slightly Nov. 29 on the New York market as Enbridge Energy Partners LP, Houston, reopened three of four oil pipelines that were shut in following an explosion and fire.

Sam Fletcher
Senior Writer

HOUSTON, Nov. 30 -- Crude prices increased slightly Nov. 29 on the New York market as Enbridge Energy Partners LP, Houston, reopened three of four oil pipelines that were shut in following an explosion and fire.

Two employees of Enbridge Energy died Nov. 28 in that mishap 3 miles southeast of its Clearbrook, Minn., terminal. That is the main pipeline system carrying crude from Canada to Midwest refineries, transporting 1.5 million b/d or 15% of total oil imports into the US. Canada is the biggest supplier of crude imported into the US and shipped 2 million b/d in September, according to the most recent government figures.

Enbridge has restarted Line 1, shipping light crude and natural gas liquids; Line 2, light crude; and Line 4, heavy crude. Line 3 where the explosion and fire occurred is still shut in and may take 2-3 days to return to service, said company officials. "Currently, there are no pressure restrictions on Lines 1, 2, and 4," the company said. Investigation of the cause of the mishap is continuing.

Since a major disruption of crude to Midwest refineries "did not materialize," the market quickly resumed "its corrective pattern," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. Benchmark US crude "has not yet been able to break the $90/bbl support (and bottom of the $90-100/bbl range), but the volatility and weakness of the time-spreads and the Brent-West Texas Intermediate arbitrage is an indicator that a more structural correction is currently taking place," he said.

Jakob noted that the market on Nov. 30 was facing the last weekend prior to the Dec. 5 meeting of ministers of the Organization of Petroleum Exporting Countries. As a result, crude prices "remain exposed to sound bite headlines" on the possible outcome of that meeting, he said.

There is a possibility that OPEC may agree to raise crude production quotas, "though we are skeptical about significant, sustained actual output increases," said analysts with the Societe Generale Group (SGG) in Paris. More likely, they said, "OPEC will keep crude supply fairly tight. Production will not exceed the current quarter's 31.2 million b/d in any quarter next year, and will be cut back in the second and third quarters."

SGG analysts see "no reason for OPEC to change strategy of tight crude stocks and backwardation, especially with growth in NGLs output and with prices easing from current levels." They therefore expect benchmark US crudes to average $81/bbl in 2008, up from $72/bbl in 2007. "Geopolitical risk also is expected to support prices next year. Price premiums will wax and wane, depending on developments. Nigeria, Iran, Iraq, and Saudi Arabia are the usual suspects [for political risks]. Russia and Venezuela add spice to the mix," SGG analysts said.

Energy prices
The January contract for benchmark US light, sweet crudes jumped to $95.17/bbl in overnight electronic trading Nov. 29 before closing at $91.02/bbl, up 39¢ for the day on the New York Mercantile Exchange. The February contract increased 32¢ to $90.35/bbl. On the US spot market, WTI at Cushing, Okla., was up 39¢ to $91.02/bbl. Heating oil for December delivery inched up 0.33¢ to $2.58/gal on NYMEX. However, the December contract for reformulated blend stock for oxygenate blending (RBOB) dropped 1.09¢ to $2.26/gal.

The January natural gas contract dropped 3.4¢ to $7.45/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 11.5¢ to $7.38/MMbtu. "Natural gas rolled over to its January contract, pushing the price higher into the $7.70/Mcf range before falling 25¢/Mcf," said analysts in the Houston office of Raymond James & Associates Inc.

In London, the January IPE contract for North Sea Brent crude gained 41¢ to $90.22/bbl. The December gas oil contract increased $7.75 to $829.25/tonne.

The average price for OPEC's basket of 12 reference crudes dropped 30¢ to $87.78/bbl on Nov. 29.

Contact Sam Fletcher at samf@ogjonline.com.

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