MARKET WATCH: Oil price up on OPEC meeting outcome speculations

A moderate rise in oil prices offset a decline in gas prices Dec. 3 in the New York market as traders speculated over the possible outcome of the Dec. 5 OPEC meeting in Abu Dhabi.

Dec 4th, 2007

Sam Fletcher
Senior Writer

HOUSTON, Dec. 4 -- A moderate rise in crude prices offset a decline in natural gas prices Dec. 3 in the New York market as traders continued to speculate over the possible outcome of the Dec. 5 meeting of the Organization of Petroleum Exporting Countries in Abu Dhabi.

"Headline trading" will continue to dominate the oil market through that meeting, said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. The Iranian president's opposition to a production hike by OPEC sparked a late rally in crude prices Dec. 3. "But technically the market remains in a downtrend, still being capped by the 5-day moving average," Jakob said.

Meanwhile, a report issued Dec. 3 representing the consensus of all 16 US spy agencies said Iran stopped its nuclear weapon program in 2003 and hasn't yet revived it. In fact, the National Intelligence Estimate said US intelligence agencies don't know if Iran plans to develop nuclear weapons, although it likely is keeping its options open. That new assessment "could reduce the geopolitical premium embedded in crude prices," said analysts in the Houston office of Raymond James & Associates Inc.

"It will make it harder [for President George W. Bush] to push for tougher sanctions on Iran, but most importantly it should seriously dent the market fear of a US unilateral strike on Iran," Jakob said. That fear "has been an important component of the risk premium in crude," he said.

In other news, Enbridge Energy Partners LP, Houston, said Dec. 3 it repaired and restarted its Line 3 crude pipeline near Clearbrook, Minn., following an explosion and fire that killed two workers last week (OGJ Online, Nov. 30, 2007). The company replaced a 180-ft section of pipe damaged by the explosion and is now shipping 430,000 b/d through that line, officials said.

Separately, Saudi Aramco said Dec. 3 a fire occurred Dec. 1 at a Saudi Aramco Lubricating Oil Refining Co. refinery south of Jeddah. Officials said the fire started in a storage tank when a malfunctioning cooling fan ignited a propane leak. It was extinguished with no casualties, officials said. They reported the refinery would soon be back to full operation.

Energy prices
The January crude contract for US light, sweet crudes gained 60¢ to $89.31/bbl Dec. 3 on the New York Mercantile Exchange. The February contract increased 78¢ to $89.04/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 60¢ to $89.32/bbl. The new front-month January heating oil contract slipped 0.39¢ to $2.51/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) advanced 1.95¢ to $2.25/gal.

The January natural gas contract lost 8.8¢ to $7.21/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 27.5¢ to $7.01/MMbtu.

In London, the January IPE contract for North Sea Brent escalated by $1.54 to $89.80/bbl. "Brent crude oil is trading at a premium to WTI for the first time since July," said Raymond James analysts. Gas oil for December dropped $10 to $782.75/tonne.

The average price of OPEC's basket of 12 benchmark crudes lost $1.63 to $84.28/bbl on Dec. 3.

Contact Sam Fletcher at samf@ogjonline.com.

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