Oil Tops $30 per bbl
Compliments of the Houston Chronicle
Latest News
--------------------------------------------------------------------------------
Fear of Clash with Iraq Propels Crude Oil Prices above $30 per Barrel
Aug 21, 2002 (Houston Chronicle - Knight Ridder/Tribune Business News via
COMTEX) -- Continuing fear of short supplies if the United States invades Iraq
drove oil prices above $30 per barrel Tuesday, but they are not expected to stay
there long.
The talk of war by the Bush administration has pushed prices to the highest
levels since February 2001, overcoming concerns that a slowing economy would
mean reduced demand for the remainder of the year.
Estimates from analysts of the so-called "war premium" on the benchmark crude
oil futures contract range from $2 and $6 per barrel.
The September contract expired Tuesday, which compounded the upward pressure on
prices. Prices rallied as the day went on as traders who bet on falling prices
had to buy contracts to close out their positions.
But the law of supply and demand is likely to intrude today. Prices are expected
to open much lower today because of high inventory numbers that came out after
the market closed.
The October contract will be the near-month contract trading when the session
opens today. It never got close to $30 a barrel on Tuesday, closing at $28.77
per barrel, off 3 cents per barrel.
"I would expect it to open much lower than where September closed out," said
Kyle Cooper, oil analyst with Salomon Smith Barney in Houston.
Light, sweet crude oil for delivery in September closed Tuesday on the New York
Mercantile Exchange at $30.11, up 27 cents per barrel, the highest the
near-month contract has closed since Feb. 13, 2001.
Traders have been pushing up oil prices since last week when reports came out
that the Navy was chartering commercial ships to move military hardware to the
Persian Gulf from the United States and Europe.
Fear over a possible clash with Iraq was a large factor in driving up prices,
said Christopher Theal, energy analyst with CIBC World Markets, who believes oil
is trading at $4 to $6 above where it would be on fundamentals.
In London, the October Brent crude-oil futures contract fell 16 cents to $27.10
a barrel on the International Petroleum Exchange.
The rally will almost certainly end today because of much higher-than-expected
inventory numbers released by the American Petroleum Institute after the markets
closed Tuesday.
Many traders and analysts had expected to see a substantial decline in
inventories, but instead, the weekly report on oil stockpiles showed crude oil
inventories rose by 6.64 million barrels.
Some analysts questioned the API numbers last week because they did not jibe
with the totals for imports, production and crude runs at refineries.
Some felt the API was trying to rectify its overcalculation of last week's
drawdown with the large inventory gain reported Tuesday.
"They gave us back a few barrels," Cooper said of the API. "This is one step in
rectifying the imbalance, but we still have another week or two before this is
straightened out."
As its September meeting approaches, talk of what the Organization of the
Petroleum Exporting Countries will do next will play a growing role in
determining oil prices.
On Tuesday, it reacted to remarks by Kuwait's acting oil minister, Ahmad Fahd
al-Ahmad al Sabah, that OPEC should not raise its production quotas at the
September meeting.
OPEC's target price is $22 to $28 a barrel. The "OPEC basket," an average of
seven crudes produced by the cartel and Mexico, usually trades at about a $2
discount to the benchmark contract on the New York Mercantile Exchange, so it's
now around the top of the range.
The United States is encouraging the cartel to hike its quota by 1 million
barrels per day when the oil ministers meet Sept. 19 in Osaka, Japan. Whether
that would make any difference in prices is questionable because the group's
exports are already around that level.
The cartel is producing 1.8 million barrels per day over its current quota of
21.7 million barrels per day, OPEC said earlier this week.
Iraq's disputes with the United Nations, which governs its production, have led
the frequent export disruptions.
Iraq is estimated to be producing 1.7 million barrels per day. The Saudis have
reassured the market it could make up any loss of those exports in a short
period.
Both Nigeria and Algeria are seeking higher quotas. Algeria has already made a
request for the matter to be discussed when ministers meet next month.
But the deciding vote has not been cast. The most influential member of OPEC,
Saudi Arabia, has not given any indication as to which production strategy it
prefers for the rest of 2002.
In other trading Tuesday at the New York Mercantile Exchange, September gasoline
futures gained 94 points to 80.03 cents a gallon, while September heating oil
futures rose 41 points to 73.80 cents a gallon.
Natural gas futures fell 3.1 percent amid concerns that U.S. supplies of the
fuel remain on course to reach record levels by November. September natural gas
was down 10.1 cents to close at $3.166 per thousand cubic feet.
By Michael Davis
