MARKET WATCH: Energy prices slip in second profit taking session

The expiring crude contract slipped in profit taking during a second consecutive session Oct. 22 as the US dollar rebounded against the euro but declined against the Japanese yen.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 23 -- The expiring crude contract slipped in profit taking during a second consecutive session Oct. 22 as the US dollar rebounded against the euro but declined against the Japanese yen.

The dollar fell to 113.35 yen, the lowest level since Sept. 10, but strengthen against virtually all other rival currencies after first hitting a new low against the euro.

In other news, the Kurdistan Workers' Party—a Kurdish rebel group in Iran—said a June ceasefire with the Turkish military is still in place, while seven workers, three foreigners and four Nigerians, were released Oct. 29 after being kidnapped Oct. 27 from Royal Dutch Shell PLC facilities in the EA oil field off Nigeria.

"The hostages from the Shell EA platform in Nigeria were released very quickly. The Nigerian Delta is not yet a fully secure environment (and the two children of a local oil superintendent were reported kidnapped yesterday) but the quick resolution to the EA hostage taking is a break of usual pattern," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, on Oct. 23.

Jakob said: "A [possible] full-scale Turkish military intervention in northern Iraq is being played down. Overall, while geopolitical issues are still an underlying concern, oil continues to flow in Nigeria and export tenders of Kirkuk [in Iraq] crude oil are continuing. Since the middle of September, a total of 17 million bbl of Kirkuk [crude] has been awarded and the next tender is for 6 million bbl to be lifted by mid-November, which would make for 23 million bbl over 2 months or about 380,000 b/d, which comes on top of the additional 500,000 b/d from [the 10 members of the Organization of Petroleum Exporting Countries still subject to quotas, aside from Iraq and Angola]."

He said, "The Kirkuk supplies remain mostly un-priced in the market as they are still viewed as too unreliable in the current 'war' environment. If they were to be maintained, they would, however, bring a noticeable change to the Mediterranean crude market that has suffered in the past years from supply interruption during the winter months, linked to lengthy delays in the Bosphorus transit for cargoes of Urals crude oil. The Kirkuk exports are unpriced in the trading of flat price, but the reality of the supply is helping to keep the backwardation on [North Sea] Brent spreads under pressure."

In their Houston office, analysts with Raymond James & Associates Inc. reported, "The move in oil prices from $20-70/bbl over the past 5 years has been fundamentally driven—[by] demand that is steadily rising, supply growth that is limited, and excess capacity that is dwindling. On top of that, the geopolitical risk premium has now reemerged."

Raymond James analysts said, "While we do not believe in the nightmare scenario that Turkish military action in northern Iraq would set off a major regional war, neither can we rule out the prospect of some localized oil supply disruptions. This needs to be viewed within the context of a notably tight global oil market, and one we believe will get even tighter over the next 12-18 months. Furthermore, Iraq is hardly the only source of geopolitical risk for the oil market, with other wildcards including Saudi Arabia, Iran, Russia, Venezuela, and Nigeria very much in the picture. All this means that a geopolitical risk premium of some magnitude looks set to remain in oil prices on a permanent basis."

Energy prices
The expiring November contract for benchmark US sweet, light crudes fell $1.04 to $87.56/bbl Oct. 22 on the New York Mercantile Exchange. The December contract lost 93¢ to $86.02/bbl. On the US spot market, West Texas Intermediate was down $1.04 to $87.57/bbl. The November contract for reformulated blend stock for oxygenate blending (RBOB) lost 3.53¢ to $2.13/gal on NYMEX. Heating oil for the same month declined 1.97¢ to $2.31/gal.

The November natural gas contract fell 15¢ to $6.89/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 39.5¢ to $6.49/MMbtu.

In London, the December IPE contract for North Sea Brent crude lost 52¢ to $83.27/bbl. Gas oil for November dropped $8.75 to $722.25/tonne.

The average price for OPEC's basket of 12 reference crudes fell $1.32 to $80.23/bbl on Oct. 22.

Contact Sam Fletcher at samf@ogjonline.com.

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