IPE Brent crude falls slightly as market watches US Gulf recovery

London (Platts)--30Sep2005

IPE Brent crude was slightly weaker early Friday as traders continue to
gauge the recovery in the US Gulf. At 0940 GMT, the November futures Brent
contract was down 5cts at $63.79/bbl in London.
    Crude prices fell Thursday despite there being no oil production in the
offshore US Gulf for six days, and with the loss of oil output from Hurricanes
Katrina and Rita now just shy of 38-mil bbl.
     "People appeared to get sucked into buying on Wednesday despite the
bearish stats [issued in the US Department of Energy's weekly inventory
report] and the market came off hard as a consequence yesterday," one London
broker said.
     Products have continued to lead the market movements, with Thursday's IPE
Gasoil intraday movements as wide as $26.75/mt. At 0937 GMT, the October
futures gasoil contract was up $3.50 to $632.75/mt, $29/mt off the all-time
high set on Sep 1. "NYMEX heating oil is driving the entire complex, and we
may see further shocks today when the US opens. It is really hard to see where
the market may land, but I suspect it must fall," one IPE gasoil trader said.
     NYMEX WTI has flipped into backwardation, while Brent has resisted such
movements, to remain in contango. "There is plenty of Brent around, in
comparison to WTI, hence the price structure is different," one trader said.
     The WTI-Brent spread has widened considerably in recent weeks. At 1006
GMT, the November Brent was trading -$3.12/bbl under WTI, much lower than the
traditional $1 to $2 spread. "The shortage of WTI and plentifulness of Brent
has driven this movement, and once the US Gulf supply issues are resolved, we
should see that arb close," one broker said.
     The Congressional Budget Office Friday stated that the economic
effect of the Hurricane Rita and Katrina will not be as bad as first feared.
The International Monetary Fund have stated that they expect eurozone growth
to expand into 2007, estimating an expansion of 1.2% in 2005, 1.8% in 2006 and
2% in 2007. 
     Houston Exploration said Thursday that all of its offshore fields had
been visually inspected and that damage from Hurricane Rita appeared to be
minimal, but that 75% of its Gulf of Mexico production remained shut in
because of infrastructure problems onshore.
     "The lack of damage should lead to a fall in crude prices, however the
short-term supply issues caused by production lock-in's are giving support to
the market," one IPE player said, "$61.50 is an important resistance point. If
this is tested a few times, we may see the price fall down to $56/bbl."
     Elsewhere, four refiners in southern France were facing operations delays
as a port strike entered its fifth day. France largest refinery, Total's
343,000 b/d Gonfreville plant, is also shut down due to strike action.

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