Market watch: Energy futures prices rise with resistance by Iraqi forces

<a href=ogj.pennnet.com>Oil & Gas Journal Sam Fletcher Senior Writer

HOUSTON, Mar. 25 -- Energy futures prices rebounded Monday, reversing last week's downward trend amid new indications that the war in Iraq likely will take longer and be more costly than traders originally anticipated.

The US stock market, which had been on an upswing since the start of hostilities, was adversely affected by new developments in that war.

Nigerian production falls "Following a 23% decline last week primarily driven by what was hoped to be a quick war in Iraq, crude oil prices have moved higher early this week, fueled by increased resistance by Iraqi troops and escalating political unrest in Nigeria," said analysts Tuesday at Jefferies & Co. Inc. in New York. "Over the past few days, approximately 835,000 b/d, or 38% of Nigeria's crude oil production, has been shut down due to political unrest," they reported.

At its previous capacity of 2.18 million b/d, Nigeria was the third largest active producer in the Organization of Petroleum Exporting Countries and the fifth largest exporter of oil to US markets.

Therefore, analysts said, "At a time when Iraq exports have been shut down, Venezuela is pushing to boost production back toward pre-strike levels, and OPEC is nearing its capacity, Nigeria's problems are of high concern. The positive is that we are entering the seasonally weak demand period; worldwide oil demand is expected to decline about 1.6 million b/d in the second quarter vs. the first quarter."

Current problems in Iraq, Venezuela, and Nigeria "highlight the risks behind US reliance on unfriendly and unstable countries for our crude oil needs," analysts said. "Although the US would remain dependent on oil imports, it would seem logical that the US government pushes—perhaps through royalty relief or opening up environmentally sensitive areas—to increase domestic production."

Tanker traffic PetroLogistics—the European think tank that monitors oil tanker traffic—estimated Tuesday that production among the 10 active OPEC members increased by 780,000 b/d to 26.08 million b/d in March from its revised February estimate. However, it said that increase was more than offset by the decline in Iraq's estimated production to 1.45 million b/d in March, from 2.6 million b/d earlier.

Since the start of the war, Iraq's oil exports have halted. London-based Tankerworld reported through its website Tuesday that tanker activity in the Mediterranean has declined as a result. However, it said tanker traffic is increasing in the Caribbean as Venezuela's exports pick up volume after the protracted strike.

Another industry source Tuesday told OGJ online that "a handful of US and European shipping firms are now loading crude and products" for export from Venezuela, although many of those shipments still are limited to vessels owned and operated by Petroleos de Venezuela SA. "Accurate and credible information on what's going on inside the poststrike Venezuelan oil industry is really hard to obtain," the source said. However, he said, loadings of oil and petroleum products for export remain "considerably lower" than before the strike.

Meanwhile, insurance rates for tankers operating in the Persian Gulf were reported "jumping all over the place" Tuesday, following the discovery of explosive mines in those waterways.

Market prices The May contract for benchmark US sweet, light crudes rebounded by $1.75 to $28.66/bbl Monday on the New York Mercantile Exchange, while the June position advanced by $1.36 to $27.54/bbl. Unleaded gasoline for April delivery jumped by 4.54¢ to 89.79¢/gal. Heating oil for the same month rose 2.81¢ to 78.37¢/gal.

The April natural gas contract gained 12.5¢ to $5.25/Mcf Monday on NYMEX. That market was "moving upward with crude oil prices amid cooler late-week weather forecasts that could increase demand," said analysts Tuesday at Enerfax Daily. "Look for the natural gas market to head back toward mid-range, continuing a consolidation pattern in a sideways market over the short-term," they advised. "A dip below $5.08(/Mcf) could take the market down in a big move. Prices have fallen 45% since late February, reflecting moderating temperatures and the coming of spring weather."

In London, the May contract for North Sea Brent oil climbed by $1.74 to $26.09/bbl Monday on the International Petroleum Exchange. However, the April natural gas contract lost 3.4¢ to the equivalent of $2.72/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes increased by 89¢ Monday to $25.70/bbl.

Contact Sam Fletcher at samf@ogjonline.com