1.

World Business

OIL PICKS UP IN ASIAN TRADE

Associated Press
July 15, 2005 - 5:41 GMT

http://edition.cnn.com/2005/BUSINESS/07/15/oil.prices.ap/

[PHOTO CAPTION: BP's Thunder Horse platform in the Gulf of Mexico began listing earlier this week.]

SINGAPORE -- Crude oil futures bounced back in Asia Friday, reversing losses in New York, as signs began to emerge that oil exports from Mexico and Venezuela could be hurt by hurricanes in the Caribbean and Gulf of Mexico.

Earlier, oil prices in New York fell by more than $2 a barrel after an international energy watchdog said China demand growth was slower than expected.

In Singapore, light, sweet crude for August rose 40 cents, or 0.7 percent, in Asian trade to $58.20 a barrel.

In New York floor trade Thursday, the contract slid $2.21 to settle at $57.80 a barrel, lifted partly by data showing that U.S. petroleum inventories are higher than expected.

Crude, gasoline and distillate stocks remain above year-ago levels in the United States, according to the U.S. Department of Energy's latest petroleum data snapshot released Wednesday.

And while U.S. rigs in the Gulf of Mexico largely escaped the wrath of Hurricane Dennis and are likely to be out of the path of incoming Hurricane Emily, traders began to worry that the storms are limiting oil production and shipments from Mexico and Venezuela.

Venezuelan authorities ordered several oil tankers in the key oil refining zone of Puerto La Cruz to remain in port, likely delaying exports.

BP is working to right its $1 billion Thunder Horse oil platform in the Gulf of Mexico. The giant rig started listing on Monday after Hurrican Dennis passed through the area, though experts think the mishap may have been human error rather than hurricane-related.

Analysts tracking Emily's path said it could hit the Cantarell oil field in Mexico, which could immediately wipe out 2.5 percent of the world's daily oil consumption of around 84 million barrels.

"The market is still tightly enough balanced and the cushion of surplus capacity is narrow enough to keep a relatively high floor under prices," said Tom Wallin, an analyst with Energyintel.

Heating oil meanwhile, rose a cent to $1.6675 a gallon in Asian trading while gasoline moved a tad upward to $1.6990. Both contracts fell more than six cents overnight.

Front-month Nymex crude futures contract had its peak settlement of $61.28 on July 6 and touched an intraday high of $62.10 the next day on weather fears and the London terror strikes.

"The immediate cause of the drop below $58 is the likely path of the next tropical storm, which poses little threat to U.S. oil and gas production facilities or refineries," Wallin said. "However, other cracks are also appearing in the bullish facade. Inventories look increasingly healthy and refined products are notably softer as well, cutting into big refining profits."

On Thursday, Hurricane Emily strengthened in the Caribbean -- unleashing heavy surf, gusty winds and torrential rains on Trinidad, Venezuela, and the Dominican Republic.

Forecasters predict Emily, the second major hurricane in the young but active Atlantic storm season, will not cut a swath through production facilities in the Gulf of Mexico and Louisiana but could reach the southern coast of Texas by next week.

However, analysts warn frequent evacuation off rigs and platforms are a disruption in itself.

"(If) prudence determines that every passing storm requires evacuation of rigs, the season still could be disruptive," said oil analyst John Kilduff of Fimat USA.

Prices are more than 40 percent higher compared to a year ago, but would need to hit $90 to reach the record inflated adjusted high set in 1980.

The oil selloff in New York began Wednesday after an international energy watchdog said demand growth in China is slower than expected.

"We're starting to get a lot of confirmation, piece by piece, of demand growth that is hardly spectacular and nowhere near what we saw in 2004," said oil analyst John Kilduff of Fimat USA in New York.

Light sweet crude for August delivery declined by $2.21 to settle at $57.80 a barrel on the New York Mercantile Exchange.

The slide in oil prices was attributed in part to the Department of Energy's latest petroleum supply report, which showed a 3.2 million barrel increase in U.S. inventories of distillate fuel, which include heating oil, diesel and jet fuel. Distillate inventories are now 4 percent above year-ago levels, comforting a market that had been jittery about refiners' ability to produce sufficient amounts ahead of next winter.

In London, Brent crude oil futures declined by 96 cents to settle at $57.31 a barrel on the International Petroleum Exchange.

Oil analyst Carl Larry at Barclays Capital in New York said Thursday's selloff was magnified by speculators taking profits and he believes these same investors will jump right back into the market at the $56 level. "I don't think this is the last we've seen of $60," he said.

On Wednesday, the Paris-based International Energy Agency revised its global demand growth outlook downward by 200,000 barrels a day to 1.58 million barrels a day in 2005, citing a weaker outlook for United States and China, the world's top two energy consuming nations.

The agency now puts average global demand in 2005 at 83.9 million barrels a day. It expects worldwide demand of 85.6 million barrels a day in 2006.

China's hunger for oil has been blamed for rising prices and a drop in the world's spare capacity of petroleum, but Morgan Stanley economist Andy Xie believes demand from the mainland is slowing.

"At some point, the oil market will abandon the fiction of endless Asian or Chinese demand," Xie said in a research note Wednesday. (China 'could trigger oil collapse')

2.

Markets

Commodities

OIL BOUNCES AS HURRICAN EMILY THREATENS SUPPLIES
By Kevin Morrison

Financial Times (UK)
July 15, 2005 -- 12:16 GMT

http://news.ft.com/cms/s/95a174dc-f51f-11d9-8ffc-00000e2511c8.html

Crude oil prices reversed early losses to advance as concern was heightened by the threat of Hurricane Emily, which missed Venezuela, one of the world’s largest oil exporters, and may turn in the coming days towards the Gulf of Mexico where it could disrupt oil supplies in the U.S. and Mexico.

IPE Brent for September delivery added 52 cents to $57.48 a barrel in late-morning trade, after falling to an intra-day low of $56.50 earlier in the session. This followed a 96 cents slide in the previous session.

August West Texas Intermediate gained 48 cents to $58.28 a barrel in electronic trade, partly reversing the slide of $2.31 in the previous session.

Reuters reported that Hurricane Emily grew as it swept into the southeastern Caribbean Sea late on Thursday, but forecasters Accuweather said there was an 85 per cent chance the storm would stay on its current path toward northeastern Mexico or far south Texas.

Last week’s Hurricane Dennis briefly shut most oil and gas output, but companies were quick to restart operations.

3.

Home UK

FIRST OIL ETF TO LAUNCH IN LONDON
By Kevin Morrison

Financial Times (UK)
July 15, 2005

The world's first oil-backed exchange traded fund (EFT) is due to be listed on the London Stock Exchange at the end of the month, providing an investment vehicle that closely tracks the oil price without having to trade in the futures market or buy oil company shares.

Oil Securities, a company controlled by Graham Tuckwell -- who set up the world's first gold-backed ETF in Australia in 2003 -- plans to list at least one oil security on July 28 in London, and may list two funds, depending on interest from investor roadshows over the next two weeks.

ETFs are tracker funds with lower management charges than mutual funds because they require no active management.

Mr. Tuckwell said that one security would track the price of the front-month Brent contract traded on the International Petroleum Exchange in London, while the other security would track the West Texas Intermediate contract traded on the New York Mercantile Exchange.

At present, investors looking for exposure to oil would have to either buy shares in the major oil companies such as BP, Royal Dutch/Shell Group, ExxonMobil, ChevronTexaco or Total of France or else have to buy oil futures in London and New York. However, many fund investors are unable to trade futures because they do not have the mandate to do so.

"A lot of investors have seen the oil price rise over the past two years, but are frustrated because they don't have direct exposure to it," Mr. Tuckwell said.

He said that oil equities have a correlation of about 20 per cent with the movement of oil prices, as they have other businesses such as gas, refining and alternative energy that dilute their correlation with the price of oil.

Mr. Tuckwell said investors would also be able to sell short oil ETFs if they expected that oil prices were going to decline. He said the securities will qualify for the LSE's stock borrowing and loan agreement whereby investors can borrow a stock or security and sell it.

He said he was confident that the investment in the oil ETFs would surpass the funds attracted to the gold ETFs. An estimated $3.5bn had been invested in gold bullion securities globally, with London accounting for about 20 per cent of this trade.

"When you compare oil and gold, whether it is on market capitalization, trading volumes or open interest, oil is always higher by a magnitude of five to 20 times, so I would not be surprised to see that repeated here," he said.

Each unit of the ETF equates to a barrel of oil, with the price settled in U.S. dollars. Citigroup and UBS have an exclusive arrangement to be the market makers for the ETFs for 12 months. The oil securities are backed by oil contracts sold by Shell Group with an initial supply of 40m barrels.