Market watch, July 10

The August contract for the benchmark blend of light, sweet US crudes pushed past the $30/bbl mark Friday on the New York Mercantile Exchange as the market corrected previous overreactions during the other 2 trading days last week.

Jul 10th, 2000


The August contract for the benchmark blend of light, sweet US crudes pushed past the $30/bbl mark Friday on the New York Mercantile Exchange as the market corrected previous overreactions during the other 2 trading days last week.

The near-month contract regained 29� to end the week at $30.28/bbl Friday. That same contract had lost a total $2.51/bbl earlier last week, as traders returned from a 2-day Independence Day holiday Wednesday to find themselves even more dependent upon the whims of foreign oil producers.

Saudi Arabia's announcement over the holiday that it might increase its oil production by another 500,000 b/d, above the 708,000 b/d hike recently agreed to by OPEC, triggered a knee-jerk selloff of hydrocarbon futures when the NYMEX reopened. However, officials said short-term technical trading brought the market up Friday in the belief that it was oversold.

An Energy Information Administration report of low heating oil stocks, along with statements by three OPEC officials that there would be no production hike without consensus of cartel members also helped put some backbone in Friday's market.

The NYMEX contract for September crude gained 14� to $29.18/bbl. But both contracts retreated in after-hours electronic trading, to $29.76/bbl and $28.76/bbl respectively.

The August contract for unleaded gasoline inched up 0.62� to 92.64�/gal, while heating oil increased 0.52� to 78.9�/gal. The August contract for natural gas was up 19.6� to $4.26/Mcf.

On the International Petroleum Exchange in London, the August contract for North Sea Brent crude gained 3� to $29.70/bbl. The August gas contract was up 6� to an equivalent $2.82/Mcf.

Brokers said the London market appears fairly stable with oil prices just below $30/bbl. But bullish sentiment remains strong with little bearish news recently.

The average price for the Organization of Petroleum Exporting Countries' basket of seven crudes was up 7� to $28.99/bbl.

Meanwhile, two recent studies by independent analysts reported that oil demand will remain strong, buoying oil prices over the short-term.

Dale W. Steffes of Planning & Forecasting Consultants in Houston sees total US expenditures for energy increasing to $618 billion, or 7.2% of the nations' total GNP this year. That's up from $528 billion, or 6.5% of the GNP, in 1999�enough to tighten the nation's economy to the point of a possible recession, he said.

Total US spending for foreign energy imports this year will exceed $100 billion for the first time, surpassing the previous peak of $83 billion in 1980, Steffes said.

With inventories of heating oil and natural gas at unusually low levels, oil and gas prices will remain high through this winter, said Steffes. But prices will soften as more supplies come into the market, especially from deepwater operations in the Gulf of Mexico.

"Eventually, deep offshore production will equate to another Alaska," Steffes told OGJ Online.

Officials at Energy Security Analysis Inc. are predicting a quicker turning point�about mid-August�when "crude demand peters out on the weaker product markets in the Atlantic basin and a slowdown in crude purchasing (occurs) in the Pacific Basin."

They claim Saudi Arabia's proposal to increase production has sprung "a bull trap" because no additional crude is needed. "How fast the price will fall and where it will stop is as yet unclear," officials said.

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