Market watch: Air strikes stop market free fall

US and British air strikes against Iraq, along with fresh speculation about a 1 million b/d production cut by the Organization of Petroleum Exporting Countries, stopped a week-long free fall of energy futures prices Friday on the New York Mercantile Exchange.

Feb 19th, 2001


By the OGJ Online Staff


HOUSTON, Feb. 19
�US and British air strikes against Iraq, along with fresh speculation about a 1 million b/d production cut by the Organization of Petroleum Exporting Countries, stopped a week-long free fall of energy futures prices Friday on the New York Mercantile Exchange.

The March contract for benchmark US light, sweet crude gained 33� to $29.13/bbl on the NYMEX, while the April contract rose 29� to $29/bbl.

Refined products also closed higher, with March unleaded gasoline up 1.03� to 86.45�/gal. Home heating oil for the same month rose 0.32� to 76.01�/gal.

However, the March natural gas contract dipped 2.6� to $5.57/Mcf on the NYMEX.

In London, North Sea Brent oil futures showed little change after failing to break resistance at $27/bbl on the International Petroleum Exchange. The April Brent contract settled at $26.89/bbl Friday, up 25� from its previous close, after trading in the range of $26.82-$27.05/bbl.

There appears to be good technical support at $26.50/bbl on that market, which is trying to consolidate, analysts said. With a little more buying interest among traders and a less bearish report on US inventories this week by the American Petroleum Institute, they said, IPE oil futures probably will rise above $27/bbl.

Also on the IPE, the March contract for natural gas fell 3� to the equivalent of $3.73/Mcf.

The average price for OPEC�s basket of seven crudes rose 7� to $24.90/bbl on Friday.

For the whole week, however, that basket price averaged $25.97/bbl, down from $26.86/bbl the previous week.

So far this year, OPEC�s basket price has averaged $24.73/bbl, compared with average prices of $27.60/bbl for all of 2000 and $17.47/bbl during 1999.

Oil market prices will continue to waffle with speculation as to whether or not OPEC members will again cut production at their Mar. 16 meeting.

For the first time in its 40-year history, OPEC has embarked on a coordinated, sustained effort to manage the world oil market, said Jim Placke, director of Middle East research for the Cambridge Energy Research Associates.

During most of its existence, OPEC �rode the political trends� generated by wars and other events, taking advantage of price movements that it did not generate, said Placke, former US deputy assistant secretary of state for Near Eastern affairs, at a CERA energy conference in Houston last week.

However, the series of adjustments in production quotas that OPEC began in 1999 has moved oil prices in the directions that the organization intended, although often not within its target price range, he said.

OPEC�s solidarity is still holding under Saudi Arabia�s leadership, Placke said.

�Members recognize now that too high a price will crimp demand and damage their market shares,� he said, by bringing more non-OPEC production on stream.

However, Placke warned that oil markets would likely see a sharp increase in price volatility due to what he described as political factors. �Whether it�s OPEC managing supply or the US using its Strategic Petroleum Reserve to control prices, we will get more volatility."

Previous efforts by US government officials to talk OPEC into keeping production up and oil prices low has had an effect among those members to whom �a good relationship with the US is important.�

But the Clinton administration failed in its last effort to talk OPEC out of a production cut. �And SPR is not big enough to be a buffer stop� against future price hikes, said Placke.

More in Economics & Markets