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The Commodities Report

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Middle East conflict strengthens crude

Tue, Jan 6 2009, 10:12 GMT
by KBC Market Research Desk

KBC Bank

Headlines

• Stronger greenback weights on gold

• Base metals mixed after Friday’s rally

Brent and Distillates

Oil prices rose on Monday due to violence in the Middle East together with concerns over supplies from Nigeria after militants blew up a pipeline over the weekend and deepening Russian gas supply row.

An Iranian military commander reportedly called for an oil boycott over Israel's offensive in the Gaza Strip. However, as an OPEC source said on Monday, core OPEC oil producers in the Gulf would ignore Iran's call for Islamic countries to cut supplies to supporters of Israel in response to the Israeli offensive in Gaza.
A senior Iranian official also said on Saturday that OPEC could meet in February. Algeria's Energy and Mines Minister Chakib Khelil has also expected the group could hold a meeting before March. But there were no plans for OPEC to hold an extraordinary meeting before the next scheduled gathering in March, the OPEC source said.

Iran will cut oil supplies to at least two of its Asian customers by 14 % this month as a sign that OPEC's No. 2 producer implements output curbs. Also Kuwait will deepen oil supply cuts to its main customers in Asia later this month, refiner sources said on Tuesday.

China's fuel oil imports almost doubled to 2.6 mln.t m/m in December, as buyers rushed to import before a fuel tax hike comes into effect on Jan. 1, industry sources said. November import volumes stood at 1.39 mln.t, based on official customs data.
China takes advantage of falling oil prices to boost imports and builds up its oil reserves against supply shocks, a top official Zhang Guobao, head of the National Energy Administration, said. He stressed that China would actively build the second phase of state strategic oil reserves, having largely completed the first.
As China's long-awaited shift to a new fuel pricing regime took effect Jan 1, the biggest question of all remained unanswered -- will Beijing really allow pump prices to move with the market? For the moment the question is unclear. Crude oil prices have stabilised on either side of 40$/b since China cut gasoline prices by 14% and diesel by 18% two weeks ago, knocking them roughly into line with global rates.

According to FT the U.S. government is to buy 12mln.bbl of crude to replenish the country’s strategic reserve, taking advantage of the steep fall in oil prices.

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Published on  Tue, Jan 6 2009, 10:41 GMT