MARKET WATCH Demand, Middle East violence push up energy prices
Sam Fletcher
Senior Writer
HOUSTON, Aug. 19 -- Energy prices continued exploring new highs Wednesday amid new threats by insurgents to Iraq's oil facilities. Earlier this week, Iraq had one of its main southern pipelines closed, and its Basra export terminal in the Persian Gulf was operating at half-capacity while firefights raged in Najaf.
The US Energy Information Administration reported Wednesday that commercial US crude inventories fell by 1.3 million bbl to 293 million bbl during the week ended Aug. 13, with gasoline stocks plunging by 2.6 million bbl to 205.7 million bbl. US distillate stocks increased by 2.1 million bbl to 124.6 million bbl, with heating oil accounting for most of that gain.
"August is well on track to produce the highest-ever monthly average for gasoline demand," said Paul Horsnell, Barclays Capital Inc., London.
"The big picture story continues to be the pace of demand growth pushing spare oil production capacity down to a thin level," Horsnell said. "The main driver for prices is the loss of insulation against potential [supply] shocks as demand ramps up towards its seasonal maximum. This has left key producers in a Catch-22 situation. Any lack of supply response to the upward trend in prices would force prices higher. However, the more that [crude production] is increased to allow current supply to keep up with demand, the more that the thinning of the cushion of spare capacity becomes a burning market issue. Potentially that leaves the market in a rather bizarre and vicious loop."
Meanwhile, the Organization of Petroleum Exporting Countries said Thursday its total crude production jumped to 26.89 million b/d in 2003 from 24.3 million b/d in 2002, with only two members—Iraq and Venezuela—failing to record increases. Total world crude production increased to 67.09 million b/d from 63.9 million b/d, the group said.
Eight OPEC members increased crude exports last year, while three—Iraq, Venezuela, and Qatar—registered decreases. OPEC's share of world crude exports climbed to 48.7% in 2003 from 47.2% in 2002. Its share of total world crude production increased to 40.1% from 38%, it said.
Energy prices
The September contract for benchmark US sweet, light crudes closed at a record $47.27/bbl, up by 52¢ for the day, after touching a new peak of $47.39/bbl during Wednesday's trade on the New York Mercantile Exchange. That contact has set a new record high in 14 of the last 16 trading sessions on NYMEX. The October contract advanced by 9¢ to $46.35/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by 53¢ to $47.28/bbl.
Gasoline for September delivery gained 0.83¢ to $1.2972/gal on NYMEX. Heating oil for the same month rose by 0.31¢ to $1.225/gal. The September natural gas contract inched up by 0.9¢ to $5.38/Mcf "in a featureless session with marketers switching open interest out of September and into the October contract as the market waits for some new fundamental information to give it direction," said analysts Thursday at Enerfax Daily.
EIA reported Thursday that 78 bcf of natural gas were injected into US underground storage in the week ended Aug. 13. That was up from 72 bcf the previous week and 77 bcf during the same period last year. The latest figure may indicate the onset of some fuel-switching back to natural gas from residual fuel oil in the Northeast, said Robert S. Morris, Banc of America Securities LLC, New York.
In London, the October contract for North Sea Brent increased by 4¢ to $43.03/bbl Wednesday on the International Petroleum Exchange. Gas oil for September gained $2.50 to $391.75/tonne. The September natural gas contract inched up by 0.37¢ to the equivalent of $3.97/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes gained 32¢ to $42.07/bbl Wednesday.
Contact Sam Fletcher at [email protected]