MARKET WATCH: Crude price tops $88/bbl in trading session

Oct. 17, 2007
The front-month crude contract jumped again for the sixth consecutive session Oct. 17, topping $88/bbl for the first time on the New York market on fears of a possible Turkish attack on Kurdish separatists in northern Iraq.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 17 -- The front-month crude contract jumped again for the sixth consecutive session Oct. 17, topping $88/bbl for the first time on the New York market on fears of a possible Turkish attack on Kurdish separatists in northern Iraq.

Prime Minister Recep Tayyip Erdogan said Turkey's parliament may approve Oct. 18 a military incursion into Iraq. Analysts said such action could disrupt pipeline transportation of oil from Iraq's Kirkuk field in the north to the Turkish export terminal of Ceyhan and delivery of oil from the Caspian Sea to the Mediterranean via the 1,768-km Baku-Ceyhan-Tbilisi pipeline that Azerbaijan, Georgia, and Turkey officially inaugurated in 2006.

"Oil prices have climbed over 10% in the past 6 [trading] days on concerns of a possible Turkish offensive," said analysts with Raymond James & Associates Inc. in Houston.

Meanwhile, Abdalla Salem El-Badri, secretary general of the Organization of Petroleum Exporting Countries, reiterated that market fundamentals "are not supporting current high prices and that the market is very well supplied." Instead, he blamed "market speculators, persistent refinery bottlenecks and seasonal maintenance work, ongoing geopolitical problems in the Middle East, and fluctuations in the US dollar."

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said: "Angolan exports will reach a new record high in December, bringing its production 580,000 b/d higher than in December 2006, or 350,000 b/d higher than in August of this year. And this is before the full production of the new Mondo 100,000 b/d field that will start in the final days of December. Stocks of Kirkuk crude oil are also building up in Ceyhan, and so far Iraq continues to export from its northern [pipeline] route. As long as there are no Kirkuk disruptions, on the combination of growth from Angola and Iraq, we are looking at total OPEC December supplies to be 1.2 million b/d higher than a year ago."

Therefore, Jakob said, "OPEC is in no hurry to increase further its quota as it is looking at the reality of this supply while the market assumes that Kirkuk flows will be disrupted and conveniently ignores the Angolan growth as it is falling neither in the OPEC-10 nor the non-OPEC category. Both the growth of Angola and Kirkuk have started late in the third quarter and their impact are not yet apparent in the importer's statistics, but it remains that while we had declining OPEC production into the winter of last year, we will have increasing OPEC production into this winter."

US inventories
The US Energy Information Administration reported Oct. 17 commercial US inventories of crude jumped by 1.8 million bbl to 321.9 bbl during the week ended Oct. 12, much more than Wall Street analysts' consensus of an 800,000 bbl increase. Gasoline stocks shot up by 2.8 million bbl to 195.8 million bbl in the same week, thanks largely to a strong increase in gasoline imports to 1.09 million b/d, said EIA officials. That was in contrast to a consensus increase of 300,000 bbl. Distillate fuel inventories increased by 1 million bbl to 136.3 million bbl, vs. a consensus loss of 700,000 bbl. Propane and propylene inventories declined by 100,000 bbl to 60.4 million bbl in the same week.

Imports of crude into the US increased by 539,000 b/d to 10.4 million b/d during that period. Yet the input of crude into US refineries increased by just 12,000 b/d to 15.1 million b/d, with units operating at 87.3% of capacity. Gasoline production fell to 8.9 million b/d, while distillate fuel production was relatively flat at 4.2 million b/d.

Energy prices
The November contract for benchmark US light, sweet crudes soared as high as $88.20/bbl in intraday trading Oct. 16 before closing at a record $87.61/bbl, up $1.48 for the day on the New York Mercantile Exchange. The December contract gained $1.45 to $86.58/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.48 to $87.62/bbl. Heating oil for November delivery escalated by 3.15¢ to $2.34/gal on NYMEX. The November contract for reformulated blend stock for oxygenate blending (RBOB) increased 1.62¢ to $2.17/gal.

The November natural gas contract dropped 7.8¢ to $7.37/MMbtu, "on the belief that current inventories are enough to meet US winter heating demand," said Raymond James analysts. On the US spot market, however, gas at Henry Hub, La., jumped by 23¢ to $7.27/MMbtu.

In London, the November IPE contract for North Sea Brent crude increased by $1.41 to $84.16/bbl. Gas oil for November gained $13.25 to $722.75/tonne.

The average price for OPEC's basket of 12 benchmark crudes climbed $1.06 to $80.82/bbl on Oct. 16.

Contact Sam Fletcher at [email protected].