Business | Oil & Gas
Price action awaits Iran nuclear move
Crude oil on the New York Mercantile Exchange has lost 13 per cent since topping out two weeks ago at $147.27 a barrel.
- By Dalton Garis, Special to Gulf News
- Published: 00:09 August 3, 2008
Abu Dhabi: Crude oil on the New York Mercantile Exchange has lost 13 per cent since topping out two weeks ago at $147.27 a barrel.
On Thursday it flirted with $120, but on Friday it rose on the weekly Energy Information Administration's report showing a deep drawdown of US stocks of over three million barrels. This pushed the crude price up more than $4 before settling back by noon in New York.
More surprises were to come: Spokesmen in the Israeli government said on Friday that Iran was likely on the threshold of a breakthrough in nuclear development, making markets fearing this was a prelude to a pre-emptive Israeli air strike against Iranian targets.
But by the end of the day traders had discounted most of its significance, reassuring themselves that military action by Israel against Iran was quite remote after all. The benchmark West Texas Intermediate nearby contract closed the trading week at $125, up from $123.26 at the previous Friday's close. Crude delivery for 2010 lost a lot of ground, settling at $124.36, far below the previous week's $130.17.
The back crude contracts continued to lose against the nearbys, inverting the forward curve once again and indicating that markets think any difficulties will not be with us in two to five years.
Friday's report of Iran's reaction to international demands that it cease its nuclear activity tells the story. Expect crude markets to respond accordingly when they open for business today in the Middle East and tomorrow in the rest of the world.
In the local market the benchmark Dubai Mercantile Exchange's Oman heavy sour closed trading for the week at $126.69, registering a premium to the West Texas Intermediate light sweet benchmark and rising from $124.22 at the close of the previous week's trading.
The price for the October delivery 2008 Oman contract was $122.20 on Friday, up $1.01. All the backs are at least $1.00 higher per barrel, indicating that markets anticipate Asian demand to increase over time.
Natural gas
Last week's Nymex natural gas nearby benchmark contract reached $9.38 per million btu, slightly up from $9.08 at the end of the previous week, showing no strong directional tendencies.
The US is one of the world's largest natural gas producers and new gas exploration shows promise in shale formations in the northeast and northern Louisiana, southern Arkansas and elsewhere. Even if just a portion of what is promised eventually comes on line it could give even greater impetus to some planners that the US can utilise its vast natural gas supplies and other energy resources to bridge the gap and reduce the need for crude oil imports. Watch for this to become a more important discussion point as the American presidential election draws closer.
The writer is an associate professor of Economics and Petroleum Market Research at the Petroleum Institute, Abu Dhabi.
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