Market watch: Middle East war nerves send energy futures prices soaring

By OGJ editors

HOUSTON, Aug.13 -- Energy futures prices jumped Monday, with reports that the US Navy was looking to charter a large ship to transport supplies to the Middle East.

That triggered speculation that the long-threatened US military showdown with Iraq was imminent. US Navy officials later denied the report, but only after the end of trading on the New York Mercantile Exchange.

As a result, analysts expect energy futures prices to retreat during Tuesday's session. However, they said the market remains vulnerable to additional price spikes as a result of "war nerves."

Fears that military action could disrupt Middle East oil supplies caused the September contract for US benchmark sweet, light crudes to jump $1 to $27.86/bbl on NYMEX. The October contract was up 78¢ to $27.15/bbl. Petroleum products also closed higher, with heating oil for September delivery rising 2.28¢ to 69.46¢/gal. Unleaded gasoline for the same month shot up 2.25¢ to 77.75¢/gal.

The September natural gas contract climbed 20.4¢ to $2.97/Mcf on NYMEX, while the October gas position was up 19.7¢ to top $3/Mcf. "For the first time in months, futures are trading above physical prices," said analysts at Enerfax Daily. "Today, expect the market to test $3-$3.05(/Mcf). A technical pattern located in the low $2.80s suggests such a test."

They attributed the fly-up in natural gas futures prices to "funds, commercial trade, and locals cover(ing) short positions." They said, "Funds were seen as heavily short from the Commitments of Traders Report on Friday, and the run-up aggravated the short covering.

"Also helping prices higher is a warmer-than-normal forecast for this week. Cooling-degree days are projected to be about 9.2% above normal for the week. Look for the Energy Information Administration to report a storage injection of about 45-55 bcf this week, compared with a 46 bcf build a year ago and a 5-year average build for the week of 56 bcf."

In London, the September contract for North Sea Brent crude gained 70¢ to $26.04/bbl after trading in a range of $25-26.05/bbl Monday on the International Petroleum Exchange. The September natural gas contract inched up 0.8¢ to the equivalent of $1.90/Mcf on the IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes increased by 50¢ to $25.37/bbl Monday.