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Oil Prices Hover Above $64 a Barrel As Tensions Between Iran, the West Leave Markets Jittery

Oil prices rose by more than US$1 a barrel Wednesday but were still below an earlier spike of more than US$5 a barrel on rumors that Iran had fired a missile at a U.S. ship in the Persian Gulf.

The U.S. military denied the reports. Still, rumors about a military confrontation spurred panic buying in after-hours trading Tuesday, sending oil prices above US$68 in a matter of minutes. Rising tensions between Iran and the West have created a potentially dangerous situation in the Gulf and markets are jumpy.

Prices fell back within a couple hours, although they remained higher than Tuesday’s settlement price of US$62.93 a barrel. Another possible calming factor was word from Iran’s foreign minister that a detained female British sailor would be freed on Wednesday or Thursday.

Light, sweet crude for May delivery was up US$1.13 at US$64.06 a barrel by afternoon in Europe in electronic trading on the New York Mercantile exchange. Brent crude for May delivery rose US$1.19 to US$65.79 a barrel on the ICE Futures exchange in London.

“The major concern is that if the rumor had been true, you’d have a major disruption to supply,” said Andrew Harrington, an analyst with ANZ Global Natural Resources in Sydney. “You have about a quarter of the world oil coming through the Straits of Hormuz and any military conflict would severely disrupt those supplies, which obviously sees the price spike.”

The surge indicates the nervousness in markets, he said.

“The political premium had been taken out of the price, and as soon as any signs of new development takes place, they get put back into the price,” Harrington said.

Traders were also awaiting U.S. government oil inventories data due later in the day. The U.S. Energy Department’s report is expected to show a gain of 1.1 million barrels in crude oil inventories in week ending March 23, according to analysts polled by Dow Jones Newswires.

Gasoline supplies are expected to decline by an average of 1.8 million barrels, while distillate stocks — which include heating oil and diesel fuel — are expected to dip by 800,000 barrels.

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We all know from reading the articles on GasHostage.com that oil companies are making record profits at our expense and they have no intentions of lowering prices. We also know that though the costs associated with obtaining oil today has increased; it is no where near the level that the oil companies have been espousing over the last 10 years.  Oil is NOT in danger of running out anytime soon!  We have plenty of oil and gas reserves, and many untapped new drilling sites, but the oil giants want us to believe that oil is scarce or hard to drill so they can continue to RAISE our prices.

Not only have the oil and gas giants been treating the general consumer poorly, but they also take advantage of the countries they get their oil from.  Many times they simply take the oil from financially unstable countries, by offering huge promises of wealth and actually only providing a fraction of the contracted price. 

The oil and gas companies have grown so large and come to dominate the economic landscape across the entire planet.  Fighting them will be difficult, but not impossible.  As consumers it will be in our interest to discover ways to impact the very core of these large companies and make a statement that we will not tolerate their ways any longer!

Recently we came across a plan to force the oil and gas companies to lower prices.  The idea is to boycott the largest producers of Gas and Oil in your country.  With that in mind, oil companies will be forced to either lower the price to get their products onto the market, or to sit on their reserves and eat billions of dollars in sales.

If you are interested in joining our fight, we would like to hear from you!

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Oil prices rose further Thursday building on gains the day before caused by a report showing declining U.S. crude inventories.

The upward trend reflected traders’ attention with short-term developments – falling supplies over concerns over slowing economies in the United States and elsewhere.

Light, sweet crude for April rose 53 cents to $62.32 a barrel by noon in Europe in electronic trading on the New York Mercantile Exchange.

On Wednesday, prices hit a two-month high following a U.S. government report that stockpiles of gasoline and distillates, which include heating oil and diesel fuel, dropped last week by a larger amount than analysts had forecast.

Iran’s persistent refusal to suspend its nuclear program has also been a driving force behind the energy market’s advance.

The gains in the oil market came despite a big drop Tuesday in U.S. share prices on worries about an abrupt economic slowdown. The fall was triggered partially by a 9 percent drop in Chinese shares amid speculation that Beijing may take further steps to slow China’s rapid growth.

Markets have since started to bounce back.

But early concerns that U.S. and Chinese fuel demand growth could slow were offset by the release of Wednesday’s U.S. inventories report.

“The oil market has essentially brushed off the correction in the equities market and is focusing on the U.S. inventory report, which was quite bullish,” said energy analyst Victor Shum, of Purvin & Gertz in Singapore.

U.S. crude inventories climbed 1.4 million barrels to 329.0 million barrels last week, the Energy Information Administration said Wednesday in its weekly report. But gasoline inventories fell by 1.9 million barrels to 220.2 million barrels, and distillate inventories fell by 3.8 million barrels to 124.5 million barrels. Both drops were a bit larger than most analysts were expecting.

Shum said, however, that the stock market and economic concerns had contributed to slow trading in the oil market.

“I think in the near term we can expect a lot of volatility in the oil market,” Shum said, noting continuing concerns over Iran.

Iran ignored an IAEA deadline last week to halt its nuclear program. Iranian Foreign Minister Manouchehr Mottaki reiterated Tuesday that his country would never again suspend uranium enrichment, a move the United States insists on for any negotiations with Tehran.

Vienna’s PVM Oil Associates noted that “the bullish influence” generated by Wednesday U.S. inventory figures “more than offset the adverse impact of data showing weaker than expected U.S. economic growth for the fourth quarter 2006 as well as concerns about the health of the global economy.”

In other Nymex trading Thursday, natural gas futures rose 1.17 cents to US$7.317 per 1,000 cubic feet. Heating oil futures under the new April contract traded at US$1.7897 a gallon (3.8 liters), up by just over a penny.

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Oil prices fell about $2 a barrel Tuesday to their lowest levels in 18 months in a market expecting more mild weather and rising inventories in the United States.

Temperatures in the U.S. Northeast have been above normal this winter, curbing demand for heating fuels in the world’s largest heating oil market.

Market watchers are also looking for a rise in U.S. petroleum inventories in this week’s government report.

Light, sweet crude for February delivery on the New York Mercantile Exchange dropped $2.04 to $54.05 a barrel in electronic trading by afternoon in Europe. The front-month contract last closed below $54 a barrel in June 2005.

February Brent crude at London’s ICE Futures exchange fell as much as $1.96 to $53.64 a barrel.

Traders said a break through key support levels triggered a wave of sell orders.

The Nymex oil contract slipped 22 cents to settle at $56.09 a barrel Monday after falling nearly 8 percent last week.

Monday’s session was volatile, however, as prices rose as high as $57.72 on reports that OPEC oil ministers are considering another cut in output, and worries that a dispute between Russia and Belarus could result in energy shortages in parts of Europe.

The halt to the flow of Russian oil through Belarus had supported prices Monday, but ample supplies in Germany, Poland and Ukraine were expected to keep refineries running.

Nigeria’s oil minister Edmund Daukoru discouraged talk of any immediate action to support prices by OPEC, which recently resolved to cut output by 1.7 million barrels per day.

“Let’s implement the 1.7 million fully then we’ll see if there’s a need for additional cuts,” Daukoru told Dow Jones Newswires.

If OPEC announced another production cut — on top of the 1.2 million barrel-a-day reduction that began in November, and the 500,000 barrel-a-day cut set to begin Feb. 1 — analysts say prices would likely rise. Still, OPEC’s previous cuts haven’t been able to keep crude prices above $60 a barrel for long, largely because many traders doubt that the cuts are fully enforced.

Forecasters expect temperatures in the U.S. Northeast to drop to normal levels over the next couple of weeks.

But heating oil futures fell more than half a cent to $1.5498 a gallon on Tuesday while natural gas rose 6.2 cents to $6.440 per 1,000 cubic feet.

Analysts surveyed by Dow Jones Newswires expect U.S. petroleum inventories to rise in government data to be released Wednesday by the U.S. Energy Department. Crude inventories were expected to climb an average of 820,000 barrels, the survey showed.

Crude stocks normally fall this time of year, but with imports rebounding from a recent slump, inventories are likely to rise, said analyst Phil Flynn of Alaron Trading Corp. in Chicago.

Petroleum product stocks are expected to increase for the fourth straight week. Distillate stocks, which include heating oil and diesel fuel, are seen rising by an average of 1.9 million barrels while gasoline stocks are projected to increase by 2.5 million barrels.

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Oil prices continue to come down to a realistic level but gas prices have not followed suit.  Gas prices have come down in price but certainly has not kept up with the Oil prices coming down.  Gas has drop about 10% in the same time period that Oil has fallen by nearly 25%.  Time for the gas companies to anti up!

Europe’s oil supplies from Russia were being held to ransom last night as the Kremlin fell into bitter dispute with a former Soviet satellite state.
 
Moscow abruptly halted millions of barrels of oil destined for the EU via Belarus in an increasingly hostile wrangle with its neighbour.

The move raised further questions over whether Western Europe can trust Mr Putin for its energy supply. Experts said that Russia had a deeply entrenched habit of manipulating oil and gas supplies as a substitute for diplomatic policy.

Russia’s strong-arm tactics have added resonance in Britain, amid persistent speculation that Gazprom, the Kremlin-controlled gas group, will seek to buy Centrica, the British Gas group, which has 16 million gas and electricity customers in the UK. Angela Merkel, the German Chancellor, told The Times last night that Germany will use its six-month EU presidency to improve energy security on the Continent. In her first interview with a British newspaper she signalled that she would take a harsher line towards Russia than her predecessor, Gerhard Schröder, who is now on the board of a German-Russian consortium constructing a gas pipeline linking Russian gasfields with Western Europe.

“For us, energy is what coal and steel used to be,” she said, referring to the driving forces behind the European project.

Russia’s “gas war” with Ukraine last January caused supplies to Europe to drop briefly by a third during one of the coldest winters recorded. In this case, Mr Putin’s struggle with President Alexander Lukashenko of Belarus, branded “Europe’s last dictator” by the US, once again reduced the EU to watching nervously from the sidelines as its energy supplies were hit.

Belarus considered itself Moscow’s closest ally until a week ago, but was on the verge of a trade war last night after the bitter flare-up over oil duties. More than 1.2 million barrels of oil a day flow from Russia through the Druzhba, or Friendship, pipeline, providing almost a quarter of Germany’s needs and 96 per cent of Poland’s imports, as well as supplies to Ukraine, Hungary, Slovakia and the Czech Republic.

Andrei Sharonov, Russia’s Deputy Trade and Economic Development Minister, accused Belarus of jeopardising contracts with European customers by imposing a tax on oil passing through the pipeline. Relations between the two countries have soured rapidly since New Year’s Eve, when Belarus and Russia’s state-run monopoly Gazprom came within minutes of failing to agree a gas contract for 2007.

The Government in Minsk was forced to accept a doubling of gas prices to prevent supplies from being cut to its ten million citizens.

The oil dispute centres on a tit-for-tat row over taxes. Minsk introduced a penalty on January 1 on Russian oil crossing Belarus to Europe, in retaliation against Moscow’s decision to slap a duty on oil it sold to Belarus. A government delegation from Belarus flew to Moscow last night to try to negotiate a settlement. But Mr Sharonov said that there would be no talks until Minsk cancelled its tax. Europe should expect to see the natural resources giant use the same ploy in the future to extract market prices for oil and gas out of former Soviet states, experts said.

Andris Piebalgs, the EU Energy Commissioner, said that he was seeking an “urgent and detailed explanation” about the cut in oil deliveries.

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Crude oil prices could head lower in 2007 from current levels of about 60 dollars per barrel, as global production catches up with demand and geopolitical risks lessen, experts say.

Despite hitting record highs in July, oil futures in New York ended the year about 1.5 percent lower than at the beginning of 2006, with futures in London up just 2.0 percent.

“This year, the main story has been the political risks story,” Global Insight oil analyst Simon Wardell said.

In 2006, amid an already tight supply situation, concerns about geopolitical instability in producer regions pumped prices higher and led to the all-time highs above 78 dollars per barrel in July and August.

The threat of UN sanctions against  Iran over its nuclear stand-off with the West led the Islamic Republic to hint at threatening disruption to its oil exports, which in turn sent prices surging.

In Nigeria meanwhile, militant attacks on oil facilities in the Niger delta have slashed the African country’s output by up to a third.

Prices were also supported this year by the July conflict between Lebanon and  Israel, worsening violence in  Iraq, and a hardening of relations between the United States and South American oil giant Venezuela.

And despite  North Korea not being an oil producer, news that it had test-fired missiles supported prices as traders felt the move could strengthen Iran’s position in its diplomatic battle with the West.

Aside from geopolitical concerns, oil futures won a lift from fears that the 2006 hurricane season would match the previous year’s ferocity and due to the temporary closure of facilities in Prudhoe Bay in Alaska, the biggest US oil field.

These threats and disruptions led oil prices to strike record high points. In July, light sweet crude hit a peak of 78.40 dollars per barrel in New York. In August, Brent North Sea crude reached an all-time high of 78.64 dollars per barrel in London.

These levels put oil prices 20 dollars higher compared with the start of 2006 and four times higher compared with 2002.

However they have since dived owing to high levels of US energy inventories and mild temperatures in the United States, while traders are beginning to overlook unrest in oil producing countries such as Nigeria and Iran.

Meanwhile with producers –  OPEC and non-OPEC members — pumping at full capacity, even minor output trouble would have pushed prices disproportionately upwards earlier in the year.

But as Lehman Brothers analyst Ed Morse pointed out: “Nothing that could have gone wrong in 2006 went wrong.” For example, Iran was not hit by economic sanctions and the hurricane season was calm.

Global Insight’s Wardell added: “At its peak when we were at 78 (dollars), I suppose you could say it (the geopolitical fear) was adding 25 to 30 dollars a barrel.

“It’s come down to around 15 dollars now.”

Wardell said that prices were now trading towards a range that was more reflective of the true state of demand and supply, which he put at between 55 and 60 dollars per barrel.

In 2007, he forecast that “prices will probably rise further from where they are over the winter and then begin to dip through the year as supply meets demand”.

In 2005, crude prices had raced ahead owing to strong demand in China and the United States, as well as lower production caused by hurricane damage to oil installations in the Gulf of Mexico

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Oil prices briefly shot above $63 a barrel Thursday in a rally that brokers attributed to technical trading, coupled with buying prompted by the approach of the Northern Hemisphere winter.
Natural gas futures also climbed following the release of government data that showed a net withdrawal of natural gas from domestic underground storage facilities.

Analysts are split over whether the recent surge in energy futures represents a correction for a market that had been trending lower since late summer, or if it is the beginning of a new upswing.

Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo, argued prices are headed higher.

“There are bullish factors in the market finally. I expect prices will rise to $64-65 in December,” Emori said.

But Mike Guido, commodities strategist for Societe General in New York, said the picture is less clear. For the time being, Guido believes the $7 jump in front-month crude-oil futures is a reflection of short-covering, in which traders who had expected an even steeper decline in prices this fall have been forced to cover their bets.

However, if prices settle above $63.50, Guido said that might signal a “breakout” to the upside.

Light sweet crude for January delivery rose 62 cents to $63.08 a barrel on the New York Mercantile Exchange. Brent futures rose 42 cents to $63.49 on London’s ICE exchange.

The possibility of further production cuts by the Organization of Petroleum Exporting Countries when it meets next month in Nigeria has also weighed on traders’ minds in recent days.

But “as long as prices sustain over $60, I think they don’t need to discuss cuts,” Emori said.

In other Nymex trading, natural gas futures rose 6 cents to $8.93 per 1,000 cubic feet. In its latest weekly report, the Energy Department said underground storage of natural gas declined by 32 billion cubic feet last week to 3.23 trillion cubic feet. That is still more than 7 percent above the five-year average for this time of year.

Heating oil futures rose by more than half a penny to $1.8010 per gallon, while unleaded gas futures were steady at $1.6706 a gallon.

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Oil briefly dropped below $55 Friday to its lowest level since mid-2005 amid fund selling across commodity markets on worries of an economic slowdown in the world’s largest energy consumer, the United States.

High U.S. oil inventories heading into winter, and selling pressure ahead of the expiry of the front-month U.S. crude contract at the close of trading Friday, fueled the selling.

U.S. crude was down 61 cents at $55.65 a barrel at 1600 GMT after hitting its lowest level since June 14 last year at $54.86. The price has fallen nearly 30 percent from the record of $78.40 in July. London Brent crude rose 11 cents at $58.65.

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“There is rising concern that we could be going into a U.S. economic slowdown,” said Rick Mueller, senior oil analyst at consultancy ESAI. “This fall also speaks of a well supplied crude market and a warmer outlook in the U.S., and with those conditions maybe the market is starting to wake up to the fact that prices shouldn’t be near $60.”

There was also widespread talk in the market that a fund was in trouble and unwinding its positions.

Base metals also slid on concern that if the world’s largest economy slows, global demand for raw materials would also suffer. London copper prices slid to their lowest levels since June on Friday.

U.S. industrial output data for October on Thursday was weak, showing signs of a cooling economy.

Oil markets had traded in a roughly $58-$62 barrel range for around six weeks, the longest period of range-bound trading since the same time a year ago

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Exxon Mobil Corp. (XOM) on Thursday said its profit rose to $10.49 billion in the third quarter, making it the second-largest quarterly profit ever recorded by a publicly traded U.S. company.The world’s biggest oil company said its net income amounted to $1.77 per share for the July-September period, up from $9.92 billion, or $1.58 per share, a year ago.

The results surpassed the expectations of Wall Street analysts. On average, analysts expected the company to earn $1.59 per share in the quarter.

Revenue fell to $99.59 billion from $100.72 billion from a year ago, which saw then-record oil prices because of hurricanes Katrina and Rita.

The largest quarterly profit ever was Exxon’s $10.71 billion profit in the fourth quarter of 2005.

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The Organisation of the Petroleum Exporting Countries on Thursday night agreed to cut production by 1.2m barrels a day, showing its determination to defend $60 as its new minimum international price.

The cut, which was deeper than the market had expected, will take Opec production to 26.3m barrels a day if it is fully implemented on November 1.

Saudi Arabia, the world’s biggest oil producer, on Thursday warned that the cartel could make a second cut as early as December.

But oil prices reversed gains made in early Friday trading as traders questioned whether the cuts would stick. Nymex December crude fell 71 cents to $59.79 a barrel, while ICE Brent futures fell 70 cents to $60.17 a barrel.

Opec oil ministers, who had for the last two weeks been divided over how to implement the cut, on Thursday agreed that each of Opec’s 10 active members would participate on a pro rata basis, said Edmund Daukoru, Nigeria’s oil minister and Opec’s current president.

Ali Naimi, Saudi Arabia’s oil minister, told reporters on Thursday: “The price is determined by the market, what we try to do is to make the market balanced. Today there is a dis-equilibrium between supply and demand. Today we are trying to get the market to the normal equilibrium and the price will take care of itself.”

He added that the possibility of another cut “is there”.

Vera de Ladoucette, an analyst at the consultancy Cambridge Energy Research Associates, said: “Usually when the decision is taken it has already been priced into the market. But sometimes Opec can surprise. The market is going to be caught off guard today by this decision.”

Oil producers have watched with concern as crude oil inventories have grown, indicating that the market is oversupplied.

US inventories of crude have risen in the past week by 5.1m barrels a day to levels 8 per cent above those of a year ago, according to data published on Wednesday by the Energy Information Administration, the statistical arm of the US Department of Energy.

Oil prices in the last three months have fallen 25 per cent to below $60 a barrel. Mr Daukoru said: “We have never seen a drop [in the price of oil] like this in many years.”

But despite its price concerns, Saudi Arabia did not want to return to being Opec’s swing producer of oil, a role it played from 1980-86, when it cut supplies as prices fell. Therefore, it was imperative to get the rest of Opec on board.

The full seriousness of Opec’s resolve will only become apparent in the next two months as members either adhere to the decision or cheat by not fully cutting their share.

As divisions had appeared within Opec within the past two weeks, traders began to doubt the cartel’s ability to act.

They will be looking at whether the cuts will be adhered to by at least the cartel’s lead members.

Opec’s ambition to cut supplies comes at a cost, particularly for countries that have heavily invested their petrodollars into building up their oil sectors. Libya, the United Arab Emirates, Nigeria and Algeria have courted international energy groups to help them boost their production.

Venezuela, Indonesia, Qatar and Iran also have international oil companies working in their fields. These members of Opec will now have to tell the likes of Europe’s Royal Dutch Shell, BP, Total, Repsol and the US’s ExxonMobil and ChevronTexaco to reduce the output from their fields and forgo revenue. How much each company will have to sacrifice will depend on how Opec splits the burden of the cut among its member states.

But the news is not all bad for the companies as they will benefit from any boost in prices that follows Opec’s decision.

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