MARKET WATCHCrude prices continue to fall; new attack in Iraq

Oil futures prices continued to fall Tuesday, with traders reassured by reports that Iraq's crude exports were back near normal after a southern pipeline damaged in a weekend attack was repaired faster than expected.

Sept. 1, 2004

3 min read

Sam Fletcher
Senior Writer

HOUSTON, Sept. 1 -- Oil futures prices continued to fall Tuesday, with traders reassured by reports that Iraq's crude exports were back near normal after a southern pipeline damaged in a weekend attack was repaired faster than expected.

However, Raymond James & Associates Inc., St. Petersburg, Fla., reported a strong rebound in New York crude futures prices early Wednesday with news of an explosion and fire on an oil pipeline in northern Iraq. "While the affected pipeline is not the main Kirkuk-Ceyhan[,Turkey] export line, it still shows that the overall situation remains highly volatile," said Raymond James analysts. With rare exceptions, that main northern export line has been shut in for over a year (OGJ Online, Aug. 31, 2004).

With the recent return of the main northern and southern crude export pipelines to service, other analysts had claimed Tuesday that lack of oil field security in Iraq was less important than the fact that the interim government "appeared capable of restoring the damaged pipelines after attacks, within reasonable periods of time." Moreover, with the global gap between crude supply and demand apparently closing, they said, "small decreases in Iraqi production were not as important."

Energy prices
The October contract for benchmark US light, sweet crudes slipped by 16¢ to $42.12/bbl Tuesday on the New York Mercantile Exchange. The November contract dipped by 7¢ to $42.04/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., also was down by 16¢ to $42.12/bbl.

Gasoline for September delivery fell by 1.16¢ to $1.1288/gal Tuesday on NYMEX. Heating oil for the same month lost 0.89¢ to $1.1106/gal. The October natural gas contract finished at $5.07/Mcf, down by 16¢ for the day, after falling as low as $5.03/Mcf during Tuesday's session, its lowest level for the year. Analysts at Enerfax Daily said Wednesday that decline was the result of low crude prices and forecasts that Hurricane Frances would miss the Gulf of Mexico and head instead for Georgia's east coast.

In London, the October contract for North Sea Brent crude fell by $1.03 to $39.61/bbl Tuesday on the International Petroleum Exchange, which was closed Monday. Gas oil for September delivery lost $6.75 to $352.50/tonne. However, the October natural gas contract soared by 26.8¢ to the equivalent of $5.44/Mcf on IPE, surpassing NYMEX's near-month contract price for the first time in many months.

The average price of the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes dropped by 33¢ to $38.15/bbl Tuesday.

Despite the recent price collapse, Chakib Khelil, Algeria's minister of energy and mines, said Wednesday that crude prices are expected to remain high in relation to OPEC's target price of $22-28/bbl at least until the start of 2005.

Contact Sam Fletcher at [email protected]