Market watch: Middle East tensions still driving energy futures prices

Energy futures shot up in international markets Tuesday with escalation of political tension in the Middle East. May and June contracts for benchmark US light, sweet crudes both jumped 83¢ to $27.71/bbl and $27.84/bbl, respectively, on the New York Mercantile Exchange.

April 3, 2002

3 min read

By OGJ editors

HOUSTON, Apr. 3 -- Energy futures shot up in international markets Tuesday with escalation of political tension in the Middle East.

Iraq called for Middle East producers to use an oil embargo to curb US support of Israel and to force Israel out of disputed Palestinian territories. Iraq's oil exports rose to 16.5 million bbl last week, up from 6.7 million bbl a week earlier. Under the current 6-month phase of the UN-supervised oil-for-aid program, Iraq has exported 190.6 million bbl of oil for revenue estimated at $3.5 billion.

The official news agency of the Organization of Petroleum Exporting Countries reported an unnamed Iranian government official as saying Wednesday that he could not rule out an oil embargo. However, it also reported that former OPEC Sec. Gen. Subroto said Indonesia would not support such a move, because it would only damage that country's economy.

The recent surge in world oil prices is already hurting the economies of weaker oil importing countries, analysts reported.

May and June contracts for benchmark US light, sweet crudes both jumped 83¢ to $27.71/bbl and $27.84/bbl, respectively, Tuesday on the New York Mercantile Exchange. However, both retreated, to $27.41/bbl and $27.61/bbl, respectively, in after-hours electronic trading, following the first bearish report on US oil inventories in several weeks by the American Petroleum Institute.

US oil stocks jumped by 6.5 million bbl to nearly 322 million bbl last week, API reported. US gasoline inventories also were up by 3.9 million bbl to 208.9 million bbl, but distillate fuel stocks, including heating oil, fell by 3.3 million bbl to 120.3 million bbl. US refineries were operating at 87.3% capacity last week, up from 86.3% previously.

During the regular trading session on NYMEX, heating oil for May delivery shot up 2.26¢ to 70.95¢/gal, while unleaded gasoline for the same month gained 2.08¢ to 86.98¢/gal. The May natural gas contract advanced by 12.3¢ to $3.65/Mcf.

Salomon Smith Barney Inc. on Wednesday raised its spot natural gas price forecast to an average $2.85/MMbtu for 2002, up from $2.25/MMbtu previously. It also hiked its 2003 price forecast to $3.50/MMbtu from an earlier expectation of $3/MMbtu.

"While nothing has materially changed with regard to our view of the supply fundamentals for natural gas, evidence of a stronger and more-rapid-than-expected recovery in the US economy over the last 3 months has altered our outlook on the demand side of the equation for both natural gas and crude oil," explained Robert Morris, an analyst for the firm.

In London, oil futures prices also surged as the International Petroleum Exchange, which was closed for a public holiday Monday, caught up with gains on NYMEX .The May contract for North Sea Brent jumped by $1.74 to $27.66/bbl on IPE.

Brokers said a correction from that price spike was inevitable before that market stabilizes. Brent crude prices were reported lower early Wednesday on the IPE, although prices escalated in overnight trading in Asian markets.

The May natural gas price dropped 13.8¢ to the equivalent of $1.88/Mcf Tuesday on the IPE.

The average price for OPEC's basket of seven benchmark crudes was up 80¢ to $25.83/bbl Tuesday.