MARKET WATCHEnergy prices slip as summer driving fades

Sam Fletcher
Senior Writer

HOUSTON, Sept. 7 -- Energy futures prices generally declined Friday ahead of the long US Labor Day weekend as traders, apparently complacent again about crude supplies from Russia and Iraq, failed to follow through on Thursday's rally.

However, gasoline futures prices jumped on the New York market in anticipation of the usual surge in US gasoline consumption through the holiday Monday, which marked the official end to the summer driving season as refiners turn their attention to the winter heating oil market.

When the New York market reopened Tuesday, front-month crude contracts prices continued to slip in reaction to Saudi Arabia's announcement Monday that it is reducing prices on October deliveries to North American and European refiners.

It is "probable" that "the Saudis are making a political statement," reported analysts Tuesday at Raymond James & Associates Inc., St. Petersburg, Fla. "The most vocal criticism of the Organization of Petroleum Exporting Countries (and Saudis in particular) is coming from Western countries. By incentivizing these countries to take more of their oil at lower prices, the Saudis may be hoping to defuse some of this criticism," analysts said.

However, they noted, "There is no long-term significance to the Saudi announcement. They are still trying to 'cool down' the market, and cutting prices is one of the few measures left to their disposal. The broader problem remains an almost total lack of excess production capacity, and this is not something the Saudis—or any other OPEC member—can change with a press release."

Saudi Arabia's incremental output is almost entirely "sour" crude, with a high sulfur content, that historically is sold primary to refiners in the Asia-Pacific region, the analysts said.

Energy prices
The October contract for benchmark US light, sweet crudes slipped by 7¢ to $43.99/bbl during an abbreviated trading session Friday on the New York Mercantile Exchange. The November contract lost 5¢ to $43.96/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., dipped by 7¢ to $44/bbl.

Heating oil for October delivery was down by 0.7¢ to $1.1769/gal Friday on NYMEX, but gasoline for the same month shot up by 1.33¢ to $1.2065/gal. The October natural gas contract dropped 9.2¢ to $4.68/Mcf, a new low for this year. "Natural gas futures have lost 19.6% of their value in the past month and are at levels not seen since November 2003 when physical gas prices on the Henry Hub went as low as $4.22[/Mcf] at one point," said analysts Tuesday at Enerfax Daily.

Although NYMEX was closed Monday, in London the October contact for North Sea Brent crude lost 61¢ to $40.62/bbl on the International Petroleum Exchange. Gas oil for September delivery declined by $1 to $374/tonne, while the October natural gas contract plunged by 39.4¢ to the equivalent of $4.82/Mcf on IPE.

The average price for OPEC's basket of seven crudes fell by 56¢ to $39.12/bbl Friday, then lost another 46¢ to $38.66/bbl on Monday. As of Friday, OPEC's basket price this year averaged $34.11/bbl.

Abdullah al Attiya, Qatar's energy minister, said OPEC members will consider raising the upper level of their target price to as much as $30/bbl, from $22-28/bbl currently, at their Sept. 15 meeting in Vienna.

Meanwhile, Purnomo Yusgiantoro, OPEC's conference president, said the 11 members of that group—including Iraq—are now producing a total of "29-30 million bbl every day," or as much as 2 million bbl over their current quota. As a result, world crude production is running "1.5 million bbl every day above demand, based on our forecasts," he said.

"The problem with Iraqi production is that there is disturbance—it is on and off—but their target is 1.9-2 million [b/d]," Purnomo said.

Contact Sam Fletcher at [email protected]