MARKET WATCHEnergy prices fall from record highs in profit taking
By OGJ editors
HOUSTON, May 19 -- Crude futures prices fell from record highs Tuesday as large speculative investment funds took profits by dumping long positions obligating them to take delivery on crude futures contracts.
That move came amid signals that ministers of the Organization of Petroleum Exporting Countries might agree to raise their production quotas Saturday at the start of a 3-day international forum. OPEC ministers have said they will discuss world oil markets and the recent run-up of crude prices at that meeting.
Saudi Arabia has called for the 10 active OPEC members, minus Iraq, to increase their total production quota by 1.5 million b/d to 25 million b/d. Some traders expect OPEC to announce such an agreement by the end of this week or at their scheduled June 3 meeting at the latest. However, there are indications that the OPEC-10 are already exceeding their cumlative quotas by 2 million b/d.
Meanwhile, OPEC officials in Vienna on Tuesday increased their 2004 estimate of the world's call on the cartel's crude supplies by 360,000 b/d to 26.3 million b/d.
In a separate report this week, Cambridge Energy Research Associates predicted that crude prices above $30/bbl will likely "persist longer than many believe—into 2005 and maybe 2006." CERA officials claimed, "Global oil demand is not being dampened by these prices primarily because the strong euro (and high tax component on motor fuels) is insulating European countries from their effects. And the strongest growth market—China, which has a huge surplus in its balance of payments—is not materially affected by high dollar-denominated prices because it has the financial reserves to offset them."
Tuesday's energy markets also were affected by expectations of a government report early Wednesday of large builds in US inventories of crude and gasoline. However, the US Energy Information Administration said US crude fell by 1.1 million bbl to 298.9 million bbl during the week ended May 14. That's 17.1 million bbl below the 5-year average for that period.
EIA recorded an increase in US gasoline stocks of 1.2 million bbl to 203.7 million bbl during that same period. However, gasoline inventories remained 7.9 million bbl below the 5-year average just prior to the May 31 official start of the peak summer driving season.
Energy prices
The June contract for benchmark US light, sweet crudes fell by $1.01 to $40.54/bbl Tuesday on the New York Mercantile Exchange, while the July position was down by $1.06 to $40.42/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., retreated by $1 to $40.53/bbl.
Gasoline for June delivery dropped by 3.01¢ to $1.3869/gal Tuesday on NYMEX. Heating oil for the same month lost 2.93¢ to $1.0135/gal. The June natural gas contract plunged by 27¢ to $6.15/Mcf on NYMEX, "hit by a steep drop in crude oil prices, profit taking, and a softer physical [spot] market amid fairly mild weather this week," said analysts Wednesday at Enerfax Daily.
In London, the July contract for North Sea Brent crude declined by 96¢ to $36.95/bbl Tuesday on the International Petroleum Exchange. Gas oil for June delivery was down by $6.75 to $317.75/tonne. And the June natural gas contract dipped by 1.3¢ to the equivalent of $3.75/Mcf.
The average price for OPEC's basket of seven benchmark crudes lost 79¢ to $36.93/bbl Tuesday.