MARKET WATCH: Crude prices remain near record highs

Sam Fletcher
Senior Writer

HOUSTON, July 23 -- The expiring August crude contract slipped below an 11-month high of $76/bbl July 20, but still finished the week with a 2% gain overall on the New York market.

Analysts at the Société Générale Group in Paris said US gasoline demand still could challenge the 2005 historical high this year, while the utilization rate among US refineries looks insufficient to cope with strong light products demand, even with the recent restart of some downed facilities.

In its latest monthly report, the Centre for Global Energy Studies said the Organization of Petroleum Exporting Countries needs to increase production immediately "if it really wants to ensure a balanced market with oil prices around $60/bbl, which seems to be [OPEC's] new target." CGES analysts said, "OPEC is quite simply not producing enough oil. The organization cut production in the face of a glut (mostly of fuel oil) that put downward pressure on prices at the end of last summer, but the excess has worked its way through the system and OPEC's production is now well below the call on the organization's oil. Without more OPEC oil, prices will continue to rise in the coming months."

CGES said: "Geopolitical concerns have much less impact on oil prices now than in the recent past. The Iranian government is adopting a more conciliatory approach towards the International Atomic Energy Agency, reducing for now the threat of a disruption to its oil supplies; and damage to Iraq's oil infrastructure has been greatly reduced, with just six reported attacks on oil pipelines in the first 5 months of 2007, compared with 23 during the same period last year. Only in Nigeria is political unrest a serious threat to oil production, but even there the situation appears to have stabilized, with shut-in production remaining around 750,000 b/d."

Analysts in the Houston office of Raymond James & Associates Inc. crude prices were lower in premarket trading early July 23. They said OPEC officials, scheduled to meet Sept. 11, have expressed concern over current high crude prices although that the global economy is still growing. "This is the first signal that OPEC may be reassessing its supply cuts; oil futures (and oil-weighted stocks) may be retracing some of their recent gains on the news," they said.

Energy prices
The expiring August contract for benchmark US light, sweet crudes dropped 35¢ to $75.57/bbl—still in a position to challenge previous record highs—on the New York Mercantile Exchange. The new front-month September contract lost 28¢ to $75.79/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 35¢ to $75.58/bbl. Heating oil for August delivery declined by 2.21¢ to $2.09/gal on NYMEX. The August contract for reformulated blend stock for oxygenate blending (RBOB) retreated 2.68¢ to $2.16/gal.

The August natural gas contract fell 26¢ to $6.45/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 11¢ to $6.44/MMbtu. Raymond James said natural gas was down more than 4% in premarket trading July 23, after the Atwater Valley Producers Group started production via the Independence Hub in the Gulf of Mexico (OGJ Online, July 20, 2007).

In London, the September IPE contract for North Sea Brent crude slipped 3¢ to $77.64/bbl. Gas oil for August lost 25¢ to $654.75/tonne.

The average price for OPEC's basket of 11 reference crudes increased by 44¢ to $73.67/bbl July 20. So far this year, OPEC's basket price has averaged $60.94/bbl, compared to an average price of $61.98/bbl during the same period a year ago and an average of $61.08/bbl for all of 2006.

Contact Sam Fletcher at samf@ogjonline.com.