MARKET WATCHFighting in Iraq hikes energy prices

Sam Fletcher
Senior Writer

HOUSTON, Aug. 20 -- Crude prices soared to new highs Thursday in a seemingly relentless march toward a possible $50/bbl level as insurgent militia under rebel Shiite cleric Muqtada al-Sadr torched the offices and warehouses of Iraq's South Oil Co. in Najaf.

One of Iraq's main southern pipelines remained closed because of insurgent threats, and its Basra export terminal in the Persian Gulf has been operating at half-capacity (OGJ Online, Aug. 19, 2004).

The September contract for benchmark US light, sweet crudes jumped by $1.43 to a record closing price of $48.70/bbl after hitting an all-time peak of $48.75/bbl Thursday on the New York Mercantile Exchange. The October contract gained $1.29 to $47.64/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., escalated by $1.42 to $48.70/bbl.

Heating oil for September delivery shot up by 4.05¢ to $1.2655/gal Thursday on NYMEX. Gasoline for the same month increased by 2.64¢ to $1.3236/gal. The September natural gas contract gained 12.5¢ to $5.51/Mcf "in an apparent corrective rally driven by fund buying and complimented by oil futures pushing toward $50/bbl," said analysts Friday at Enerfax Daily. "The rally came in the midst of very bearish fundamentals surrounding the [natural gas] market, a bearish-to-neutral gas storage report, no significant weather across much of the nation, no tropical weather to affect [Gulf of Mexico] production, and plenty of nuclear power," they said.

In London, the October contract for North Sea Brent crude was up by $1.30 to $44.33/bbl Thursday on the International Petroleum Exchange. Gas oil for September delivery escalated by $6.25 to $398/tonne. The September natural gas contract increased by 7.3¢ to the equivalent of $4.06/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 53¢ to a record $4.60/bbl Thursday.

Economy not slowed
Despite recent record prices for crude, analysts said they see no signs yet that the world economy is being slowed. Instead, they expect world demand for oil to continue to strengthen for some time until high prices start to stifle economic growth. In real terms, adjusted for inflation, oil prices have not yet reached the high levels of the 1970s, analysts said.

Nevertheless, Purnomo Yusgiantoro, OPEC's conference president, said Friday that he expects the group to propose significant measures to decrease oil prices at its scheduled Sept. 15 meeting in Vienna. However, he did not elaborate on what measures OPEC and other major producers might decide.

Meanwhile, the US Dept. of Commerce reported that oil exports to the US from a group of Arab countries fell sharply during the first 6 months of this year, despite a sharp increase in US imports overall.

Combined exports of crude and other oil products from members of the Gulf Cooperation Council—Bahrain, Kuwait, Quatar, Oman, Saudi Arabia, and the UAE— fell by 12% to a total value of $10.8 billion in the first six months of this year, from $12.3 billion during the same period in 2003. However, US imports from OPEC increased by 25% to more than $42 billion in the first 6 months of 2004 from $33.7 billion in the same period of 2003.

US oil imports hit an all-time record of $59.2 billion in the first 6 months of 2004, up by 23% from the corresponding 2003 period. In terms of volume, however, 2004 imports increased by 7% to 1.9 trillion bbl, reflecting the recent spike in oil prices.

Until 2002, Saudi Arabia was the top supplier of crude to the US at 1.5 million b/d or about a quarter of the kingdom's crude exports, officials said. However, the major Arab oil producers are now looking to the closer, rapidly growing Asian markets. "It is the [GCC] governments which have made the choice. The energy market of the future is Asia—particularly China and India," said Yousuf Ebrahim, president of the Strategic Energy Investment Group, Dubai.

Contact Sam Fletcher at [email protected]