Market watch: NYMEX oil price rebounds above $30/bbl as Iraqi war toughens

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

HOUSTON, Mar. 28 -- Near-month oil futures prices rebounded above $30/bbl Thursday, rising for the third time this week on the New York Mercantile Exchange as traders reversed their previous prewar sell-down based on earlier expectations of a quick and easy victory in Iraq.

The May contract for benchmark US light, sweet crudes jumped by $1.74 to $30.37/bbl Thursday on NYMEX. That same contract lost a total of $12/bbl in seven trading sessions during Mar. 13-21, with most of that loss occurring before the first bomb fell on Baghdad late last week.

Despite rapid advances by US-led forces in Iraq, futures traders have become more pessimistic during the first week of fighting, especially as they reconsidered the record-low levels of US inventories of oil and petroleum products in light of recent disruptions of 800,000 b/d of crude production as a result of escalating political violence in Nigeria.

Traders previously were confident that the other 10 active members of the Organization of Petroleum Exporting Countries would make up the loss of some 2 million b/d of Iraqi production during the war. But Venezuela still hasn't recovered its previous production level of more than 3 million b/d following a general strike aimed at ousting President Hugo Chávez. Now some industry analysts are wondering whether Nigeria may turn into "another Venezuela."

Moreover, four OPEC members—Algeria, Indonesia, Saudi Arabia, and Venezuela—called for an immediate halt to hostilities in Iraq during the recent 2-day debate by the United Nations Security Council. Algeria's UN representative said the US, UK, and other participants in the invasion of Iraq are in violation of Security Council "norms." Algeria endorsed the resolution recently adopted by the League of Arab States calling for unconditional withdrawal of foreign forces from Iraq.

Energy prices The June contract for benchmark US crudes gained $1.62 to $28.45/bbl Thursday on NYMEX. Heating oil for April delivery shot up 6.74¢ to 81.15¢/gal. Unleaded gasoline for the same month jumped by 5.05¢ to 97.47¢/gal.

The April natural gas contract advanced by 4.9¢ to $5.15/Mcf, "lifted by firm crude oil prices and short-covering ahead of expiration" of that contract, said analysts Friday at Enerfax Daily. "Look for the new May front month to benefit from a short covering rally today if it manages to stay above a key trend line at $5.25(/Mcf). That could ignite fund buying again," they advised.

The US Energy Information Administration reported Thursday that 7 bcf of gas was injected into US underground storage last week, marking "the first time an injection has been seen during that corresponding week," said Enerfax Daily analysts. That compares with withdrawals of 85 bcf the previous week and 75 bcf during the same period last year.

"The slight build in storage gas was seen as negative by traders, but with storage levels still around record lows, it didn't make much difference," the analysts said. US gas storage now stands at 643 bcf, down 918 bcf from a year ago and 580 bcf below the 5-year average.

Meanwhile, aggregate projections for the 40 largest publicly traded producers indicate US gas production in the first quarter of this year will be down 2.2% from a year ago, although up 1.1% sequentially, said Robert S. Morris, Banc of Securities LLC, New York, in a Thursday report.

In London, futures prices for North Sea Brent oil rallied Thursday on the International Petroleum Exchange with reports that the war in Iraq is likely to become more difficult. A US announcement that as many as 100,000 additional troops may be deployed was interpreted as evidence that the allies may have miscalculated the difficulty of the war, analysts said.

The May Brent contract gained $1.53 to $26.82/bbl Thursday. However, the April natural gas contract dipped by 1.9¢ to the equivalent of $2.70/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes gained $1.12 to $26.66/bbl Thursday.

Contact Sam Fletcher at samf@ogjonline.com