Oil price declines from record high

Tag : circulating basket

Oil prices retreated June 30, but not without first registeringanother record high, $143.67/bbl, in intraday trading on the NewYork Mercantile Exchange.

Moreover, analysts in the Houston office of Raymond James &Associates Inc. said crude prices were up in premarket trading July1 on continuing speculation that Israel may attack Iran over itsnuclear program. They cited an ABC News report that quoted anunidentified Pentagon official as saying it is increasingly likelythat Israel will attack Iran this year. "In addition, crude isbeing supported by a recent report that the Russian government isrefusing work permits for a number of executives working for BP[PLC]'s Russian joint venture. This news demonstrates the tenseworking environment that foreign energy companies are enduring inRussia, which will ultimately lead to reduced foreign investment inRussia's energy sector and lower oil and gas production," saidRaymond James analysts.

Analysts at Pritchard Capital Partners LLC, New Orleans, said July1, "A new front month for refined products contracts and a newfinancial quarter was ushered in with more buying for NYMEX oilfutures." They said, "Money managers have found oil to be a saferinvestment bet as the greenback tanks." Reports were circulatingthat the European Central Bank soon will raise interest rates,boosting the euro against the dollar.

Pritchard Capital analysts said, "As the futures market bouncedhigher yesterday morning, some spot markets disconnected." Thefutures contract for reformulated blend stock for oxygenateblending (RBOB) "hovered near record highs, but US Gulf Coastgasoline traded at some of the weakest levels vs. futures seen thisyear," Pritchard Capital reported. "Trading liquidity remains thinoverall in the usually very active gulf market. The huge price tagattached to outright barrels due to the vaulting NYMEX hassidelined many players who simply can't get credit to trade. Inaddition, market watchers continue to note pushback from consumersthat has diminished demand levels," the analysts said.

Speaking at a July 1 press conference at the World PetroleumCongress in Madrid, Nobuo Tanaka, executive director of theInternational Energy Agency, said, "Record prices in the oil marketin recent months have become a threat to the global economy andsocial welfare of millions of people—some are calling it thethird oil shock. While we have seen some weakening in demand in theOrganization for Economic Cooperation and Development, supplyconstraints, refinery limitations, and continued demand growth inkey emerging markets will maintain pressure in the market over themedium term," Tanaka said.

Production by members of the Organization of Petroleum ExportingCountries is "at record highs and non-OPEC producers are working atfull throttle, but stocks show no unusual build," Tanaka said,adding, "These factors demonstrate that it is mainly fundamentalspushing up the price." IEA launched its new Medium-Term Oil MarketReport at that meeting, reducing its global demand estimate for2008 by 1.4 million b/d to 86.87 million b/d.

In other news, Algeria said it will keep its oil productioncapacity steady at 1.45 million b/d, marking the second time in 6months it has reduced its production target. Government officialsreported in December that Algeria couldn't increase output to 2million b/d by 2010, as previously planned, because of a shortageof contractors. At that time they set the production target for 1.5million b/d.
Energy prices
The August contract for benchmark US sweet, light crudes slippedfrom a record high, down 21¢, to close at $140/bbl June 30 onNYMEX. The September contract lost 17¢ to $140.58/bbl. On theUS spot market, West Texas Intermediate at Cushing, Okla., was down21¢ to $140/bbl. The July contract for heating oil slipped0.37¢ to $3.90/gal on NYMEX. The July RBOB contract inched upa minimal 0.03¢ to remain virtually unchanged at $3.50/gal.

The August natural gas contract climbed 15.5¢ to $13.35/MMbtuon NYMEX. On the US spot market, gas at Henry Hub, La., increased7.5¢ to $13.16/MMbtu.
In London, the August IPE contract for North Sea Brent crude lost48¢ to $139.83/bbl. The July gas oil contract dropped $4.25 to$1,262.50/tonne.
The average price for OPEC's basket of 13 reference crudes gained72¢ to $136.03/bbl.
Contact Sam Fletcher at samf@ogjonline.com.