Oil prices hit another new record

Oil prices rose up to just shy of $127 a barrel today on the New York Mercantile Exchange before managing to trim their gains and close just short of last Friday's record close.  Trouble overseas seems to be the main reason why oil prices shot up once again.  The dollar strengthed and a report out indicated that demand is waning for oil and petroleum products.

 

Oil prices shot up to $126.98 before managing to pull back for a gain $1.57 at $125.80 for the day.

 

Gas prices at the pump rose another 1.4 cents overnight to $3.732 according to a  survey of stations of AA and the Oil Price Infromation Service.  Prices have now risen to the level the Energy Department forecast they'll peak in June, on a monthly average basis.  According to the Energy Department forecast the prices could go higher but their average will peak at around $3.73 a gallon.  Meanwhile gas futures closed higher at $3.20 a gallon up 3.58 cents.

 

Diesel prices also rose to a national average of $4.39 a gallon on Tuesday up 2.9 cents from Monday.  Heating oil futures rose 13.91 cents to settle at $3.6989 a gallon after rising as high as $3.7146.  Heating oil futures were boosted by reports that supplies of distillates, which include heating oil and diesel, fell last month in Europe.  Distillate stocks fell sharply in April, down 1.4 percent from March and 7.2 percent lower than a year ago data from Euroilstock showed.

 

June natural gas future rose 12.1 cents to settle at $11.422 per 1,000 cubic feet.

 

It is forecast oil prices may become more volatile in coming days as investors square positions ahead of the June contract's expiration next week.

 

News came out today that Iran's government is considering cutting crude oil production.  The news made its way to the trading floor quickly.  In a later news report, Iranian officials denied that production cuts were imminent, but said a reduction has been discussed.  With the bad shape of Iran's economy it is doubtful that they will actually cut production.

 

In Iran , two recently discovered oil fields, named Sefidzakhor and Dey, located in the southern Fars Province, will be developed in the current Iranian year(started March 20),  said Iran's petroleum minister on Monday.

 

It is estimated 25,000 barrels per day of oi will be produced by completing the development.  Another 15,000 bpd will be added to the country's crude oil production capacity by completing development of Sarvestan and Sa'adatabad oil fields.

 

The Fars Province produces over 122 million cubic geet of natural gas daily.

 

Establishing Pars refinery with a capacity of 120,000 bpd in one of the other plans of the petroleum ministryin Fars Province.

 

The International Energy Agency said high prices are cutting demand for oil and petroleum products in the U.S. and Europe.  The IEA cut its global oil demand forecast for this year to 1.2 percent for 1.5 percent.  In the U.S. they said oil demand may contract by as much as 2.1 percent this year, while demand for gasoline will drop by about 1 percent.

 

Energy investors were also worried today about a reported drop in crude imports by China.  Analysts were uncertain whether the 7.9 magnitude earthquake in central China would have a significant impact on demand.

 

The U.S. Senate voted 97-1 to direct President Bush to stop adding to the nation's strategic petroleum reserve, until crude prices fall below $75.  Meanwhile the Senate rejected a broader Republican energy plan that calls for opening an Alaska wildlife refuge and some offshore waters to oil development.  Supporters couldn't get the needed 60 votes to overcome a Democratic-led filibuster threat.

 

Opponents say areas such as the Arctic National Wildlife Refuge and coastal waters ought to remain out of the hands of the oil companies.  They have been off-limits for the past 25 years.

 

San Francisco Federal Reserve Bank President Janey Yellen said she would be happy if the futures markets were right in forecasting a Fed rate increase by the end of the year.  Analysts believe higher rates could weaken commodity prices.

 

Tomorrow the Energy Information Agency is to release its weekly look at inventories and the report is expected to show crude and distillate inventories grew while gasoline inventories remained unchanged.

 

Exxon Mobil asked Alaska on Monday to pay $800 million in damages, claiming the state breached a deal when it revokes gas and oil leases on a North Slope oil field.  They also filed a separate request for reconsideration of a gas field deveopment proposal that was rejected by State Resouces Commissioner Tom Irwin last month.

 

Both filings were submitted to the Alaska Department of Natural Resources by Exxon Mobil on behalf of itself and its lease partners over the revocation of Point Thomson oil and gas leases.

 

The field in question is vital to a successful natural gas pipeline project under consideration by the state since Point Thomson holds nearly one-fourth of the 35 trillion cubic feet of natural gas reserves the state and the industry hope one day to ship in a gas line to Midwestern markets.

 

Exxon Mobil has a 36 percent interest in the field, BP Plc has a 32 percent interest, Chevon has 25 percent and ConocoPhilips has 5 percent.  The rest is owned by minority owners.

 

Exxon initially said its claims for damages was submitted as a "precautionary matter."  About four hours later, the department received the request to reconsider its decision to reject the plan last month.

 

Exxon Mobil, BP Plc and Chevron purchased leases 31 years ago to drill at Point Thomson.  They have not produced any oil or gas from the tract.  The lack of activity prompted the state to attempt to reclaim the leases late in 2006 and give other companies the opportunity to move forwards with the development of Point Thomson.

 

A Superior Court judge in December ordered state officials to weigh other options before stripping the leases.  Two months later, Exxon filed its 23rd development plan.  It involved $1.2 billion gas recycling and condensate production project to be developed over six years.  The company say it already has the drilling rig secured and planned to begin development this year.

 

OPEC ministers see no need to meet before their September meeting.  Oil minister of Qatar Abdullah al-Attiyah said, "The oil price is out of control.  Supply is sufficient and refineries don't ask for more."

 

Two of the four Bonny Light crude oil facilities in Nigeria has been restored.  There was no comment as to how much production was restored.  A force najeure on Bonny Light exports remains in place.

 

In a counter move to the rest of the airline industry, South African Airways plans to build its domestic, regional and international route network despite losing money fast due to rising oil prices.

 

Relative strength inches upward once again today as it moved up to 72%, moving closer to the normal upper end of its range.  Volume increase today to 350,221 contracts being traded on NYMEX, up from 316,844 yesterday.  Meanwhile open interest for the June contract, set to expire next week, continued to drop, losing over 31,000 contracts, down to 231,284 open contracts at the end of the day.  Overall there are 6,671,954 open oil contracts currently covering all time frames, up over 5,000 contracts from yesterday.

 

The 20 and 50-day moving averages climbed once again up to $118.71 and 110.66 respectively.

 

A retracement should still be in the cards for oil prices.  Today saw oil prices close in the higher end of their trading range.  This should bode well for a potential decrease tomorrow in prices.  I highly doubt, though, it will be a big decrease in price.