Oil prices fall as options expire

Oil prices gave up early gains as expiration of options played havoc with prices.  Oil futures were up near record high levels at times and down by more than $3 a barrel at other times.  They managed to end the day slightly lower, down 10 cents to $124.12 a barrel on the New York Mercantile Exchange.  Prices rose as high as $126.64 and fell as low as $120.75.  Also contributing to the madness in the trading pits was the June crude oil contract expiring next week.  Erratic prices can be expected ahead of expiration as investors square positions.

 

My forecast yesterday was for prices to close closer to the top of the trading range.  While being correct that oil prices should end the day closer to the top end of trading level it was simply due to the extreme trading range that was seen and not the tight trading range I was thinking should occur.

 

Helping oil prices also was a strengthen dollar.

 

Gas prices at the pump rose 1.8 cents overnight to $3.776.  Meanwhile gasoline futures fell 1.46 cents to settle at $3.1658 a gallon.

 

Diesel fuel prices soared 3.6 cents to a new national average of $4.455 a gallon.  Heating oil futures rose slightly 0.46 cents to settle at $3.6224 a gallon.

 

In the Thursday Energy Department report, natual gas supplies rose 93 billion cubic feet last week, more than analysts had expectec.  This helped to push oil prices down from its earlier highs, analysts said.  Natural gas futures ffell 19.9 cents to settle at $11.399 per 1,000 cubic feet.

 

Oil prices did not appear to react to a pipeline explosion that killed about 100 people in the northern Nigerian suburb of Lagos.  Red Cross officials said the pipeline blast appeared to have been caused accidentally by a road construction crew.

 

OPEC said its estimate of world oil demand growth for 2008 has decreases.  They currently expect global oil demand to grow by 1.35 percent in 2008 compared with a previous estimate of 1.4 percent.

 

British Prime Minister Gordon Brown called again for OPEC to increase output to help bring down record high prices that are helping to fuel inflation around the globe.

 

Governor Bill Ritter told a U.S. Senate committee today that more research is needed into producing oil from oil shale before the government sells leases for commercial production on federal lands in Colorado.

 

Currently there 360,000 acres of federal lands in Colorado that is being considered   Oil shale reserves on federally owned lands hold an estimated 1.23 trillion barrels of oil.  The Energy Policy Act of 2005 ordered the federal Bureau of Land Management to develop a plan for those resources.  It had a deadline of February 2007 for a preliminary environmental impact study to be completed.

 

Most oil shale resources in the United States come from the Green River Formation in Colorado, Utah and Wyoming.  The federally owned portion of oil shale is more than 50 times the country's proven conventional oil reserves and nearly five times the proven reserves of Saudia Arabia, according to the BLM.

 

Federal and industry officals said today that the oil and gas industry is better prepared for a rough hurricane season than they have been in year past.

 

Since Hurricane Katrina and Rita slammed the Gulf Coast is 2005, the industry has shored up its floating drilling rigs, near-shore and deep-water production platforms and other infrastructure to better withstand monstrous winds and waves.

 

Hurricane Katrina and Rita destroyed more than 100 platforms and shut in 92 percent of oil and 83 percent of natural gas output.  The government has approved removal plans for 58.  792 oil and gas wells have been plugged permanently.

 

There are about 4,000 offshore platforms which provide a quarter of the nation's crude oil production and about 15 percent of its natural gas production.  834 offshore platforms are staffed.

 

BP Plc said Wednesday a small oil leak occured in a well being brought back online earlier this week at the nations's largest oil field in Prudhoe Bay.  The well had been shut down since January for routine maintenance.  Since the worker was right there when it happened, he was able to shut down the well within minutes.

 

Lynda Giguere, spokeswoman for the Department of Environmental Conservation said even though the spill was deemed minimal an investigation still is under way.  There is no immediate word on how much was leaked, but it was a matter of gallons rather than barrels.

 

Oil drilling in the Arctic may slow down now since the polar bear has been added to the U.S. Endangered Species Act. 

 

Venzuelan President Hugo Chaves said crude oil would rise to '$400 or $500' a barrel in the event of a U.S. attack on his country.

 

The reactivation of the U.S. Fourth Fleet in the Caribbean on July 1 and what he said is a possible U.S. base on the Guajira Peninsula, shared by Venezuela and Columbia, are both threats.  He said his country doesn't plan to give the U.S. a base on the Guajira.

 

"If there's a war against Venezuela, with the oil in this soil, it won't depart from the Venezuelans, it won't go anywhere," he said.

 

In July Chaves will meet with Russian President Dmitry Medvedev in Moscow to discuss more arms purchases, which may include long and short-range anti-aircraft defense systems.

 

Angola has now surpassed Nigeria as the top Africa oil producer as unrest has sharply cut Nigerian output.

 

AAA said Thursday that 37.8 million Americans plan to travel over the Memorial Day holiday weekend.  This is a one percent decrease compared to last year.  This is the first time in six years the forecast has declined.

 

Relative strength remained unchanged today at 65% as the 20 day moving average crept ever higher to $119.68.  The 50 day moving average also moved higher to $111.60

 

Volume picked up almost 40,000 contracts to 328,574.  Open interest for the June contract continues to fall and now sits 197,081.

 

Forecast looking toward Friday is showing crude oil to be trading lower, closing out the day just above its low for the day.  It may see a nice size drop taking it back down to $121.77.