Market watch: July 5

Oil futures prices plunged Tuesday on the International Petroleum Exchange in London as traders reacted to a reported threat by Saudi Arabia to pour another 500,000 b/d of crude on fevered world markets.

Jul 5th, 2000


Oil futures prices plunged Tuesday on the International Petroleum Exchange in London as traders reacted to a reported threat by Saudi Arabia to pour another 500,000 b/d of crude on fevered world markets.

The August contract for North Sea Brent dropped by $1.52 to $29.58/bbl on the IPE as traders scurried to liquidate long positions accumulated during the recent rally. The August natural gas contract gained 8� to the equivalent of $2.69/Mcf.

IPE oil prices continued to tumble Wednesday, triggering technical stop-loss selling processes. In overnight trading on the Singapore Exchange, the August contract for North Sea Brent closed at $29.58/bbl Wednesday, down $1.52 from Tuesday's record high.

Crude prices could fall even further with the reopening of US trade today on the New York Mercantile Exchange, where traders usually react more strongly to OPEC-related news. The NYMEX was closed Monday and Tuesday for the Independence Day holiday when reports first surfaced of a proposed increase in Saudi production, above the 708,000 b/d hike recently agreed to by all members of the Organization of Petroleum Exporting Countries.

However, Middle East news organizations reported Wednesday that Saudi Oil Minister Ali al-Naimi had contacted his counterparts in Iran and Kuwait on Tuesday to reassure them that Saudi Arabia would not unilaterally increase production.

Other reports quoted Naimi as saying on Monday that "if prices do not come down, the Kingdom of Saudi Arabia, in concert with the other producer countries, will increase production by 500,000 b/d very soon from now."

Saudi Arabia is one of the few countries with sufficient spare capacity to boost production immediately. Most other OPEC members are already maximizing production. Only the United Arab Emirates and possibly Kuwait and Algeria among that group currently have spare production that they could bring to market, said industry analysts. Non-member Mexico also may have some spare production, they said.

In Venezuela and Iran, officials rejected consideration of additional production increases so soon after OPEC's June decision to hike output effective July 1.

On Monday, the August contract for North Sea Brent had gained 53� to $31.10/bbl in a late surge of buying on the IPE.

On the Singapore Exchange, the August contract shot to a new high of $31.10/bbl, amid oil importers' fears that high prices would trigger inflation among developing countries in that region.

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