Tuesday, July 27, 2004

NYMEX crude prices closed today at $41.84/barrel, up 40� over Monday's price and just a sliver short of the June 1 spike price of $42.33/barrel. If you remove that one-day spike, recent NYMEX crude prices topped off at $41.85/barrel (May 17). Thus we're back into record-breaking territory. Thankfully none of this matters because the Democratic National Convention is on TV (whew!).

Morgan Stanley's oil analysts think that baseline Brent crude prices will be $39/barrel for 2004:III. Since Brent prices are about 92% of NYMEX prices, this baseline puts NYMEX crude at around $42.40/barrel . Remember, that's just the baseline -- and Morgan Stanley sees a lot of "upside risks".
Only Saudi Arabia still has some spare capacity, probably around 1.5 mb/d. Since the Asian slowdown that we have been anticipating for some time has not yet materialized, any supply disruption, even limited, could have strong non-linear effects on crude quotes as we get closer to the Northern hemisphere winter, unless the US government decided to open the tap of its huge strategic reserves.
Dubya may just swim to victory in November on a wave of Strategic Petroleum Reserve oil.


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