Market Watch, Aug. 23

International energy futures prices dropped Tuesday as traders decided Hurricane Debby in the Atlantic Ocean didn't pose as big a threat to offshore production and Caribbean refining as they previously feared. On its last day of trade, the September contract for benchmark US light, sweet crude dropped $1.25 to $31.22/bbl on the New York Mercantile Exchange, while the October contract lost 76� to settle at $32.22/bbl.


International energy futures prices dropped Tuesday as traders decided Hurricane Debby in the Atlantic Ocean didn't pose as big a threat to offshore production and Caribbean refining as they previously feared.

A change in the hurricane's course seemed to remove its threat to the Amerada Hess Corp. refinery in the Virgin Islands. With US refineries already running at peak levels, a major shutdown could have been critical to the market.

On its last day of trade, the September contract for benchmark US light, sweet crude dropped $1.25 to $31.22/bbl on the New York Mercantile Exchange, while the October contract lost 76� to settle at $32.22/bbl. Tuesday's market correction also was typical of trade volatility on the expiration date for a contract, officials said.

However, the October and November oil contracts increased to $31.98/bbl and $31.41/bbl, respectively, in after-hours electronic trading on the NYMEX after the American Petroleum Institute reported another decline in US oil and distillate stocks for last week.

US oil stocks fell by 7.77 million bbl to 279.71 million bbl last week, again approaching the recent 24-year low. Distillate inventories dropped 2.89 million bbl to 111.18 million bbl, API officials reported after the close of regular trading.

The October contract for unleaded gasoline was down 2.3� to 93.33�/gal on the NYMEX, while home heating oil dropped 1.97� to 90.35�/gal. The natural gas contract for the same month fell 22.7� to $4.52/Mcf.

In London, the October contract for North Sea Brent settled at $29.93/bbl, down 67� for the day, after trading as high as $31.24/bbl on the International Petroleum Exchange. But analysts said that price could quickly rebound above $30/bbl if the API reported another inventory decline as anticipated.

North Sea Brent crude was trading on the IPE at $30.79/bbl Wednesday morning, after surging to $31.05/bbl.

The September contract for natural gas gained 7� to close Tuesday at the equivalent of $2.49/Mcf on the IPE.

The October contract for North Sea Brent was down 77� to $29.93/bbl in overnight trading on the Singapore Exchange.

The average price for the Organization of Petroleum Exporting Countries' basket of seven crudes dipped 79� to $28.54/bbl Tuesday.

Price outlook
International crude oil prices are expected to remain high until the end of this year, with any further production increases having only a modest effect, said London's Centre for Global Energy Studies in its latest monthly oil report. Following the approaching winter season, however, oil prices will fall throughout 2001, regardless of increased output, predicts CGES.

The center expects Brent prices to average between $28.30/bbl and $31.00/bbl in the fourth quarter, depending on whether OPEC further increases oil output at its September meeting. Average Brent prices for the entire year will be $28.30/bbl without any production rise for the remainder of the year, and $27.51/bbl with a 500,000 b/d boost, says CGES.

It predicts average Brent prices in 2001 to fall from $28.37 in first quarter to $19.81 in fourth quarter. This would mean an annual average of $22.72/bbl, provided there is no OPEC production increase next June.

The fall would be steeper�from $25.32 to $12.67�if OPEC agrees to increase output 500,000 b/d this year and maintains the higher production level through next year.

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