Weatherization Department
The Friday Report Friday August 30, 1996
FromWright Energy's
Weatherization Network Since 1984
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Oil and Gasoline Prices Surge on Iraqi Action
As many of our readers
know, we have been quoting sources insisting that our Mid-East oil supply
is becoming increasingly unsteady since last October. Please see our website
for review.
U.S. missile strikes in Iraq and the postponement of a United Nations
agreement letting the rogue nation sell oil on world markets caused crude
oil and gasoline prices to jump on commodity markets Tuesday.
Nervous investors also bid up oil stocks. But analysts were divided on how
the events would affect gasoline prices at the pump, with some saying the
loss of Iraqi oil in itself is not significant enough to make a difference.
Experts noted that Iraq's oil had yet to reach the market
and would have added only 1% to the world's average daily production had
shipments begun in October for the agreed-to six-month period.
"Compared with what happened to California earlier this year, when
you had refinery shutdowns that cost 10% of gasoline refining capacity,
this is very, very small," said energy economist Philip K. Verleger
of Charles River Associates inWashington.
Instead, the effect might be to keep prices
near their current level "instead of . . . falling later this year
by $1 to $1.50 a barrel as we had expected," said noted oil historian
Daniel Yergin, president of Cambridge Energy Research Associates in Cambridge,
Mass.
Still, there was wide agreement that petroleum prices,
always sensitive to Middle East turmoil, would continue to rise if the conflict
widens in scope or persists, creating uncertainty about oil supplies from
elsewhere in the region. That could significantly fuel inflation.
The price of futures contracts for benchmark crude oil jumped $1.15 to close
at $23.40 a barrel after trading as high as $24.25 the day after the United
States launched Tomahawk cruise missiles against Iraqi military targets.
Gasoline futures prices were up 1.35 cents a gallon to 62.96 cents.
Investors apparently were betting that the situation will worsen:
Atlantic Richfield shares jumped $4.375 to $121.125, Mobil gained $2.375
to$115.375 and Texaco surged $3.125 to $91.875 on the New York Stock Exchange.
The volatile response of oil stocks "points out that
the political situation in the Gulf region is very fragile. All you need
is one other place where things go wrong--Iran, for example--and there is
not a lot of flexibility in this," said NatWest Securities oil analyst
Adam Sieminski.
Those taking a pessimistic view said the
unavailability of Iraqi oil will put further pressure on depleted U.S. fuel
oil inventories as winter approaches. Fuel oil prices are already up 30%
over this time last year, traders said.
"We're going into a heating oil season when there
is potential for cold weather or refinery problems that could make it a
tight situation,"
said Drew Dickson, director of research and trading at GSC Energy in Atlanta.
Most agreed, however, that the impact of the loss
of Iraq's oil in the world markets will be short-lived because the oil supply
picture is improving. The introduction of more crude later this year from
new Gulf of Mexico fields and other non-OPEC countries will add 2 million
barrels
in daily production, or twice what Iraq would have provided, Verleger said.
"The effect is [that] psychologically, the longer you delay
Iraqi
oil, the less it matters," said NatWest Sieminski.
Iraq
had received the go-ahead to begin selling enough oil to earn $2 billion
designated for humanitarian aid over the six months starting Oct. 1. Based
on current prices, Iraq could have sold about 700,000 barrels daily. The
world consumes about 73 million barrels of oil per day.
The world oil market has been buffeted since
the start of the year by speculation on the return of Iraqi oil, with crude
oil prices rising and falling in response. Prior to being expelled from
the market in 1990 after invading Kuwait, Iraq was selling 3.5 million barrels
of oil a day, or 5% of world consumption.
But Iraq's incursion
into a Kurdish enclave that had been designated a protected area by the
United States and its allies provoked a missile attack and the United Nations
announced that the oil swap had been postponed.
Source: Cambridge Energy Research Associates
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