Monday, July 19, 2004

Funny how back in June everyone was running around like chickens with their heads cut off when NYMEX crude prices rose over $40/barrel. On Friday oil closed at $41.25/barrel, yet hardly a peep from the press.
Crude oil futures prices began to climb back up on Monday following a brief flurry of profit taking as news of an attack on a pipeline in northern Iraq hit the trading floors.

Saboteurs blew up a secondary pipeline that runs through al-Debis region, north-west of Kirkuk, Hadi Mustafa, local district chief, reported.

The attack followed violence over the weekend, which began with a US air strike on Fallujah, apparently backed by the interim government and targeting positions said to be held by al-Qaeda-linked foreign fighters.

On Monday, a fuel tanker driven at a police station in Baghdad was exploded, killing nine and injuring more than 50 people.

Having slipped back to $40.72 a barrel in early trade following profit taking in the wake of Friday's short covering, Nymex crude for August rose to $41.04 in electronic trade - 21 cents lower on the day.
CNN/Money notices that
. . . world spare capacity [is] at its lowest level for more than a decade . . .

Commerzbank's Turner said confirmation last week by the Organization of the Petroleum Exporting Countries (OPEC) that it will lift official output levels from August 1 by 500,000 barrels per day (bpd) would have little effect on supply.

"Most OPEC members that are not constrained by capacity are already overproducing their August 1 quotas, so this will have very little impact on physical supply," Turner said.

The producers' cartel, which controls 50 percent of global crude exports, is thought to be pumping at its highest levels since December 1979.
Don't forget what the General reported back on July 9:
The IEA estimates global oil demand at 80.6 mb/d for 2004:III and 82.6 mb/d for 2004:IV. Non-OPEC supply is pretty much fixed in the short-term (quarter-to-quarter) at about 50 mb/d. OPEC's "sustainable production capacity" is estimated to be 30.6 mb/d -- and that's including Iraqi production. Do the math and you're looking at supply and demand being exactly equal for the third quarter, but demand far outstripping supply in the fourth.
Come October we may be remembering $40/barrel as a fond memory -- unless George W. decides it's time to dip into the Strategic Petroleum Reserve.

Stay tuned.

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