- ENERGY MARKET REPORT FOR OCTOBER 1, 2004 Nigeria's President Olusegun Obasanjo warned he would not tolerate threats to Nigeria's oil industry. Meanwhile, militia leader Mujahid Dokubo-Asari accused the Nigerian government of violating a ceasefire and threatened to blow up a critical gas plant on Friday. An army spokesman said the military had received no instruction to stop its operations against militia and added that routine patrols were underway. However, later on Friday, the government called off gunships and helicopters sent to attack the militia, allowing for talks between the government and militia to resume. Separately, Royal Dutch/Shell Group has already evacuated 200 workers from the area around the Soku plant, the main source of natural gas to the liquefied natural gas plant. A Shell source said any closure of the Soku plant would reduce gas supplies to Bonny and force oilfields in the area to flare gas. However gas supply through the plant were running normally, despite the threat to attack the plant. The DOE on Friday agreed to lend 1 million barrels of crude oil from the SPR to Astra Oil. The crude will flow later this month in pipeline batches determined by Astra. The decision follows its previous decision to lend a total of 3.2 million barrels of mainly light, sweet crude to ConocoPhillips, Shell and Placid. According to the head of PDVSA, Ali Rodriguez, record oil prices are in part due to short term factors and speculation in the futures market. He also attributed the price gains to the growth of the world economy and highlighted the role played by China and India in increasing world demand for oil. Officials stated that three southern Iraqi provinces, which lie on more than 80% of Iraq's large oil reserves are considering setting up an autonomous region after claiming the area is being marginalized by the interim central government. A representative from Basra on the National Council said the city and the southern region were not fairly represented in Baghdad. An autonomous south may have a major negative effect on Iraq's economy, since Iraq's oil reserves are concentrated in the region. Refinery News The ConocoPhillips refinery in Sweeny, Texas plans to restart its coker naphtha/gas oil desulfurization unit and the delayed coker unit following the completion of maintenance work. The start up procedures will begin on Saturday. Turnaround on the units started in early September. ConocoPhillips plans to complete one day of repairs to a fluid catalytic cracking unit at its 145,800 bpd Borger, Texas refinery by Friday and restart the unit between Friday and Monday. It will repair a regenerator in the catcracker. Production News The MMS reported that there was no improvement in the amount of oil and natural gas production returning. It reported that 484,458 bpd of crude production was still shut in while 2,321.26 bcf of natural gas production was still shut in, unchanged from Thursday's level. The cumulative shut in oil production is 13.379 million bpd while the cumulative shut in natural gas production is 60.182 bcf. Hurricane damage to two major offshore crude oil platforms, BP's 60,000 bpd Na Kika platform and ChevronTexaco's 110,000 bpd Petronius, in the Gulf of Mexico has created a shortage of the Heavy Louisiana Sweet grade of oil and accounted for a recent spike in the lower sulfur grade's price. Estimates for a resumption in production are no sooner than about mid-October. According to traders and shipping brokers, Asia will export about 90,000 tons of jet fuel to the US West Coast this month as bullish heating oil futures helped open the arbitrage window. Arbitrage players have purchased jet fuel cargoes mainly from South Korea and Taiwan. Ecuador's Energy Ministry reported that the country's average oil production increased by 30% to 522,924 bpd between January and August from 401,218 bpd in the same period of 2003. Petroecuador said it averaged 193,749 bpd in the first eight months while private companies' oil output was 329,175 bpd. Separately, the company said it plans to increase its crude oil exports to 168,000 bpd in October, up 27% over the 132,000 bpd currently exported. Market Commentary The NYMEX oil market gapped lower from 49.54 as it opened down 22 cents 49.42. The market opened lower as it continued to ease off its high after failing to remain above the 50.00 level on Thursday. The crude market however immediately backfilled its gap before it traded to an intraday low of 49.20. The November crude contract later bounced off its low and traded to 49.65, where it held some resistance. The oil market however once again rallied higher in afternoon trading amid the strength of the gasoline market and traded above the 50.00 level. It posted an intraday high of 50.15 on good buying ahead of the weekend. The oil market settled up 48 cents at 50.12, the first time it has ever settled above the 50.00 level. However volume was lighter with 154,000 lots booked on the day. Open interest in the crude market built by a total of 8,288 contracts to 702,652, with open interest in the November contract falling by 3,444 contracts while open interest in the December contract built by 5,562 contracts. The gasoline market which led the complex higher ahead of the close, settled up 2.46 cents at 135.22. It traded to an intraday low of 132.30 early in the session and never looked back. The November gasoline contract, in its first day as the spot contract, breached Thursday's high and rallied to a high of 135.50 on good buying ahead of the close despite the lack of any news. Similarly, the heating oil market posted an intraday low of 137.00 early in the session before it bounced off that level and rallied ahead of the close. It breached its previous high and posted double top at 139.80 ahead of the close as it followed in the gasoline market's footsteps. It settled up 97 points at 139.58. Volumes in the product markets were moderate with 36,000 lots booked in the gasoline market and 35,000 lots booked in the heating oil market. According to the latest Commitment of Traders report, non-commercials in the crude market increased their net long positions by 6,520 contracts to 33,262 contracts in the week ending September 28th. The non-commercials increased their total long positions by 13,383 contracts to 128,187 contracts on the week. Meanwhile, the combined futures and option s report also showed that non-commercials in the crude market increased their net long positions by 4,644 contracts to 72,958 contracts. The non-commercials likely cut some of their length during Wednesday's session following the weekly petroleum stock reports. Meanwhile, non-commercials in the gasoline market increased their net long position from 5,659 contracts to 17,258 contracts while non-commercials in the heating oil market also increased their net long position from 7,417 contracts to 11,056 contracts. The crude market on Monday will be driven by any news seen over the weekend. The market which settled above the 50.00 level is seen testing its previous highs. It will be further supported if the situation in Nigeria remains unresolved even though the market is technically looking over bought. The market is seen finding resistance at its high of 50.15, 50.20-50.25 followed by 50.47. Meanwhile support is seen at its low of 49.20, 49.10 followed by its previous low of 48.40.