European oil markets calmly higher; heavy trading expected on IPE
David Young
OGJ Online
LONDON, Sept. 12 -- Crude prices and oil company share prices rose on European markets Wednesday but the investment community is waiting to "react to the reaction" following terrorist attacks on the US Tuesday.
Until the US takes the action it inevitably will, says UBS Warburg oil analyst Rick Jones, equity investors and oil market speculators will be taking account of the risk factor and firming prices.
The measured stock market response and the insistence of the Organization of Petroleum Exporting Countries that it will not seek to take political or financial advantage from the present situation has also had a calming affect, he said.
The key affect on the markets will be US reaction, he said. Until that happens activity will be muted. Any price rises in company shares have been small and the Brent spot price in London was off its Tuesday peak. Prices went as high as $29.50/bbl in the first hours of trading Wednesday, with the average $28.25. Tuesday's peak was $31.05.
Trading on the London IPE for Brent for October delivery is expected to reach record levels this week. By close on Tuesday 137,392 lots had been traded, but anticipated heavy trading ahead of the scheduled September OPEC meeting coupled with sentiment following the events in New York and the NYMEX closure are expected to take this daily average higher during the next few days.
The last day of record trading on the IPE was Apr. 10. Traded volume in Brent futures was 141,611 lots, equivalent to 142 million bbl, almost twice the level of world production. Trading in the whole of April was equal to 1.6 billion bbl, up 29% on the same period the previous year. While making no official predictions, traders on the floor suggest that this month will see that figure exceeded.
The major players in the North Sea are also making no official comment on events in the US or making any predictions on whether output levels could be increased to meet any eventual shortfall in Mideast production. Unofficially they are preparing for adverse public reaction to gasoline price rises that will occur if prices rise.
However, price rises are not inevitable says Leo Drollas of the Center for Global Energy Studies. Although an attack by the US on rogue states could cut supplies there could also be a significant slump in US demand. International air travel will suffer hugely, he said as the effects of the 1990 Kuwait invasion are repeated.
He said: "People didn't go anywhere then. The same will probably happen."