KORNER REPORT / Natural Gas & Crude Oil
01/22 World Oil Ends Higher On U.S. Products Strength
Oil prices strengthened on Friday on the back of an impressive U.S. petroleum products performance after losing ground early on.
A late burst of buying saw oil recover from negative territory where it wallowed for much of the day, dipping to a low of $10.63 a barrel.
Oil's late strength was attributed to a stealthy rally on U.S. products markets with gasoline leading the way.
London Brent blend futures for March loading last traded 12 cents firmer at $11.12 a barrel after shrugging off the bearish tone.
IPE Brent crude futures had opened strongly in London on overnight oil gains sparked by a report of Iraqi troop movements near the border with Kuwait.
But early excitement proved to be shortlived after New York markets failed to react positively to the news.
The brief rally was a result of a report from the BBC that Baghdad was moving large numbers of troops and tanks towards Kuwait and the southern no-fly zone, a security corridor imposed by the West.
An Iraqi opposition group in London said that the buildup had started more than a month ago and was aimed mainly at quelling internal opposition as well as intimidating Kuwait.
Hamid al-Bayati, of the Supreme Council for the Islamic Opposition in Iraq (SCIRI), said the buildup began in mid-December and included surface to air and surface to surface missiles.
"It's difficult to know what he is going to do because he is unpredictable," Bayati, the group's London spokesman, told Reuters in reference to Iraqi President Saddam Hussein.
"These troops have been used to suppress any kind of popular uprising. But we cannot rule out that some of these forces might be used against neighbouring countries following the latest Iraqi statements."
The military governor of Basra region, General Ahmad Ibrahim Hamash, told the BBC he was reinforcing his defences and had orders to shoot down all military planes.
The United States and Britain heavily bombed Iraq last month to punish Baghdad for what they said was failure to cooperate with United Nations inspectors.
Iraq also this month slammed the small oil-producing state for receiving SCIRI leader Mohammad Baqer al-Hakim, saying he was in the country to plan sabotage against Baghdad.
Bayati, whose organisation is seen by Western diplomats in the Gulf as an influential opposition group in the Shi'ite south of Iraq, said the movements filmed by the BBC had been going on since the start of the Moslem holy month of Ramadan.
Oil prices were helped on Thursday by weekly U.S. data showing lower crude and heating oil stockpiles.
But with oil producers showing no sign of any further move to reduce supplies prices remain well below last year's lowly $13.34 average for Brent, itself down 30 percent from $19.30 in 1997.
Mexico's Energy Minister Luis Tellez said on Wednesday that OPEC member Venezuela's lack of full compliance with agreed output cuts was stalling attempts by oil producers to further cut world oil supply.
Venezuela, Mexico and Saudi Arabia last year spearheaded a total 3.1 million barrels per day reduction to world oil supply in a bid to raise crude prices.
Caracas has acknowledged it still has not met fully its own pledged reduction while a row over how to measure Iranian supply cuts also has still to be settled.
01/22 NYMEX Crude, Products End Up, But Gains Seen Brief
Crude oil and products futures settled higher on Friday at the New York Mercantile Exchange, after a fire at the Garyville, La., refinery of Marathon-Ashland Petroleum Co. and a surge in short covering, traders said.
But traders said that despite the gains -- the second in a row after the midweek U.S. inventory data from the American Petroleum Institute showed hefty draws in crude and distillate stocks -- the market's advance seemed tentative.
March crude settled at $12.69 a barrel, up 23 cents, after last trading at $12.66. In late trading, the contract attempted to pierce resistance at $12.81, but failed, as bears pulled it down after it hit $12.80, the session high. Near the opening, the contract dropped to a low of $12.12.
Michael Busby, a trader at Northville Industries in Long Island, New York, said crude's gains were fragile and would not hold without a sustained recovery in refined products, particularly heating oil.
The market was already recovering from its earlier losses past midday when the rumors about the refinery fire added fuel to the already brisk activity.
A Marathon-Ashland spokesman, who confirmed the fire as the session headed toward the close, said damage to the 232,000 barrel-per-day (bpd) refinery was mimimal, but that its restart from a scheduled turnaround would be delayed by 24 hours.
After the upswing, crude, gasoline and heating oil trimmed their gains after some late selling at the close.
Still, crude oil and products futures ticked a few points higher at settlement, on market-on-close orders.
Front-month gasoline settled at 35.53 cents a gallon, up 1.16 cents, after last trading at 35.40 cents. It moved down from a session high of 36.10 cents. In earlier trade, it fell to a contract low of 33.55 cents.
February heating oil finished at 33.01 cents a gallon, up 0.96 cent, after last trading at 32.90 cents. The contract traded between 31.60/33.15 cents.
In London, March Brent crude on the International Petroleum Exchange last traded at $11.12, up 14 cents, dragged up by the rise in NYMEX gasoline and heating oil futures.
Despite its gains, analysts noted that heating oil's reaction to a large draw in inventories last week was somewhat less than expected.
"The heating oil market had difficulty endorsing the rally in crude oil," said senior analyst Tim Evans of Pegasus Econometric, adding that there was "plenty of selling pressure" in the market.
Forecasts of above-normal temperatures in the next few days also dragged down heating oil futures, traders said.
Demand for gasoline, meanwhile, has remained negative in recent weeks as reflected in a record build in inventories during the past week, traders said.
As the week ended, traders continued to worry over growing exports from Iraq and uncertainty about whether members of the Organization of Petroleum Exporting Countries would discuss oil prices before their regular ministerial meeting in March.
01/22 U.S. Cash Crude - LLS Rattled By Shipping Delays
The U.S. cash crude market clawed back from early losses to close higher on Friday, but remained under threat from a rising tide of oil on the Gulf Coast.
After falling to almost $12.00 a barrel, March crude oil futures managed to fight back to $12.69, up 23 cents, by the close of trading Friday on the New York Mercantile Exchange.
Still, crude traders warned of a big backup of crude on the Gulf Coast, where storage appears to be running scarce, and said prices could be set for further declines.
Indeed, Light Louisiana Sweet/St. James suffered sharp losses Friday, falling 40 cents to $1.00 under benchmark West Texas Intermediate/Cushing because of a supply backup which has developed since shipments were cut on the Capline pipeline earlier this month. It finished trade at a discount of between 85 and 75 cents a barrel.
Heavy Louisiana Sweet/Empire moved to a premium to its sister grade as a result, and ended the week at a 70 cent discount to WTI/Cushing. HLS/Empire was done on Friday morning at minus 65 cents a barrel.
Traders said that much of the volatility was caused by last minute short-covering before the Monday trading deadline for February shipments.
"People are looking at their final numbers, and realizing they have more barrels than they thought they would, in part because of the Capline problems," one trader said Friday.
Crude traders also said there was a rush to keep pace with a string of reported refinery turnarounds. Adding to an already substantial list, Marathon-Ashland said Friday a fire at its 232,000 barrels per day refinery in Garyville, Louisiana would delay the plant's return from regular maintenance by 24 hours.
The Texas grades from Midland were slightly higher on a differential basis. West Texas Sour/Midland was done at -$1.25/-$1.30/-$1.33 to WTI/Cushing and West Texas Intermediate/Midland was done at -23/-24/-22 cents to WTI/Cushing.
WTI/Cushing postings plus was done at $2.61 and $2.65, before dropping back to $2.58/2.60 a barrel.
Although cash traders concentrated on February deals, there was a little talk of March crude. WTI/Midland for March was pegged at -29/-24 cents. WTS/Midland was pegged at -$1.20/-$1.10.
01/22 North Sea Brent Moves Up 13 Cents In Late U.S.
North Sea Brent gained 13 cents in late U.S. trading on Friday.
March Brent was valued at $11.25 a barrel in the United States, up from its close earlier Friday at $11.12 on the International Petroleum Exchange.
Traders said four full cargoes of March cash Brent traded at $11.25 in the aftermarket. Another 700 lots of March cash Brent partial cargoes were also sold at $11.25, as well as 100 lots of March cash partials at $11.23.
No spread deals were heard done on Friday, traders said.
Saddam Husayn Accuses USA Of Manipulating World Oil Prices
BBC Monitoring Middle East - Political
Saddam Husayn has accused the USA, in collusion with Saudi Arabia and Kuwait, of working to manipulate the price of oil and negate OPEC's oil-pricing policies. In an article published in an Iraqi newspaper on 23rd January he attacked Saudi Arabia in particular for becoming a "bridge to the foreigner" and ignoring the best interests of its own people. He concluded by saying that the only solution was for the "will of decisionmaking... to be activated and for it to look at the interests of the people and nation first and foremost". The following is the text of a report by the Iraqi news agency INA:
Baghdad, 23rd January: His Excellency President Saddam Husayn has said that the United States, in coordination with Saudi Arabia and Kuwait, has been drawing up pricing policies with the aim of confronting OPEC's policy, particularly with respect to the issue of increasing prices. In an analysis entitled "In whose interest is the fluctuation in oil prices" published in today's issue of the newspaper 'Al-Jumhuriyah', his excellency the president says that the Saudi rulers have caused great catastrophes for and violated the rights of Arabs ever since they started to serve as a bridge for the foreigner. He notes that any ruler who links his will to the foreigner becomes unable to see the vital interests of his people when they clash with those of the foreigner. Following is the text of the analysis written by His Excellency President Saddam Husayn:
"Brothers: God can give and does give to whomever He wants in order to test him. And He can and does deprive whomever He wants in order to test him too. God has granted some countries in our nation, including Iraq, natural wealth in several forms, led by oil, which has paved the way for technical advancement. The bulk of scientific applications are related to oil and oil products. So it is a good thing for the nation when it takes a firm stand. It can be a bad thing, however, when the nation uses it to burn its bridges and stain its chastity. The nation's will and consciousness should be present when the nation has to deal with oil, especially if the covetous foreigner is involved in it.
"Let us move from general terms and be more specific. We would like to say: The Saudi rulers have caused great catastrophes for the Arab nation and violated its rights ever since they became a bridge to the foreigner. They also seriously harmed the people of Najd and Hijaz in the moral and practical aspects. Here is an example of this. The price per barrel of Arab light oil from 1973-74 until 1975 was around 30 dollars. After 24 years - that is now - it has dropped to less than 9 dollars per barrel, which is a quarter of the price 24 years ago; that is, in 1974 and 1975. Here, we must take into consideration the factor of inflation in the prices of commodities, goods and standard services, which have witnessed a great increase compared to the prices in 1975. Why has this happened? And what does it mean?
"Any ruler who mortgages his will to the foreigner becomes unable to see his people's vital interests when they clash with the foreigner's interests. The only gain he gets is that he remains in power, believing that he will remain in power so long as the foreigner is satisfied with him and that he will certainly be removed from power if the foreigner is angered by any of his actions. Therefore, the subservient ruler not only loses his will to the foreigner but makes his people lose their will too when their interests clash with those of the foreigner. By doing this, the ruler believes he can dismiss the embarrassment such a clash may cause him. Therefore, the Saudi rulers were not only content to mortgage their oil in terms of production, marketing and prices but also were deterred from transforming it into oil by-products on a large scale. They were also deterred from exploration and investments with respect to all the other raw material and natural resources they have as it would reduce the importance of oil as a revenue-generating source.
We have another example. Though it is well known that gold can be found in large and economic quantities in Najd and Hijaz, they did not explore it and did not earmark investments to mine and sell it. If this were to happen, it would give the inhabitants of Hijaz a moral boost and enable them to confront the imperialist policy of the rulers. This would also enable the people of Najd and Hijaz to say: If we have so much capabilities and diversified resources, then why should we submit to the US oil policy?
"By doing this, they act on behalf of the United States and Zionism to weaken any national and pan-Arab rule. This is because any genuine national and pan-Arab rule will put them face to face with their people when a comparison of their policies is made. That is one of the reasons why they insist on antagonizing Iraq and its faithful national and pan-Arab leadership. This also explains why the Saudi rulers emphasize the need to disarm Iraq of its weapons, although this has been achieved. The existence of weapons that can establish some kind of balance with the Zionist entity will negate the saying that the only thing the Arabs, including their rulers, can do is to submit to the US-Zionist schemes because Israel has an edge over the Arabs.
"There are many other examples. It became possible in the early seventies to greatly increase oil prices, after some Arabs under pressure from the Arab masses had drawn attention to the possible use of the nation's oil resources in a national and pan-Arab manner against those who aligned themselves with the Zionist entity in the 1973 war against the Arabs. However, this did not last long as the United States reached agreement with Saudi Arabia, Kuwait and perhaps others on specific things, including the establishment of the International Atomic Energy Agency, whose task was to formulate pricing policies to confront the OPEC policies and abort any attempt to raise prices by resorting to various means, such as securing a strategic oil reserve that would enable the United States to carry out its plans of keeping oil prices reasonable. The word reasonable is not a general term. The term reasonable prices mean they should be reasonable for the United States only and not for any other party.
"In this way, the United States has started to practically control oil prices in the entire world to a large extent, and prices were no longer affected by the law of supply and demand. So it became capable of embroiling the oil-producing countries in a series of crises according to its strategy and Zionist desire. It resorted to fabricating a fluctuation in prices upwards and downwards at certain periods whenever it wanted to. In 1986, real oil prices dropped to half the price in 1974 due to an intentional Saudi policy. The same happened in the subsequent years. Oil revenues became subject to fluctuation in terms of production and prices. This made any country which relies on oil revenues unable to draft a stable budget, including a budget for development and progress.
"It made Saudi Arabia and Kuwait - in addition to others - resort to the pretext of increasing revenues by selling oil in excess of the quantities specified by OPEC. This measure was bound to increase the quantity of oil which was expected not be sold, and thus would lead to a drop in prices. This was very clear in the OPEC agreement signed in Jakarta at the end of 1997, when Saudi Arabia exercised strong pressure on OPEC member states in order to raise the production ceiling significantly and implicitly approve of the violation of the production ceiling, which has led to a severe drop in oil prices ever since that time. It has also seriously harmed the interests of the member states and the Saudi people. So, prices drop when the United States and Zionism want them to based on their policy. In this way, they increase their oil reserve or fill any shortages in this reserve. The oil reserve continued to increase until it reached 6 billion barrels at the end of 1998.
"So prices go up at other times and for short periods of time. This does not allow oil coming from distant areas, including Arab oil, to reach Western markets. In this case, only oil from the US reserve, which is basically Arab oil, can reach these markets.
"Thus, the United States makes profits three times at the expense of the Arabs. Beside making profits by turning oil into oil and petrochemical by-products and selling them at their set prices, it earns the difference between the real value of oil and the price it imposes for it on its markets as a result of the substantial revenues earned by the governments of the industrial nations in the form of taxes on the marketed oil products and the oil companies' profits. These taxes exceed by many times the prices of the crude oil marketed to it.
"The United States also makes profits when it forces oil prices into planned fluctuations in the markets. Therefore, it occasionally reaps the difference in price between the state of relative stability and any increase that it decides in the oil prices for a specific period of time before the distant oil can reach the Western markets. In addition, this policy causes substantial confusion in world economic and financial markets. Naturally, the profits will be reaped by the party that plans and initiates this policy. This shows the volume of harm done to the Arab nation and the people in Saudi Arabia and Kuwaiti, and even the great harm done to humanity by this unpatriotic policy. It also shows how deeply the Arab nation and all of humanity are stabbed by the knives of the United States and Zionism.
"We have no solution to propose as a first step but for the will of decisionmaking in these two countries to be activated and for it to look at the interests of the people and nation first and foremost so as to be able to do what should be done towards those people's national, pan-Arab and human responsibilities."
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