AZERBAIJAN - The Global Petroleum Perspective.

The past working week on June 30 ended with August WTI closing at $73.85/barrel and spot WTI at $73.93, while Dated Brent settled at $73.28. NYMEX gasoline closed at $2.223/gallon and the heating oil futures at NYMEX closed at $2.0385/g. NYMEX natural gas fell to $6.08/m BTU and the spot Henry Hub price was $5.83/m BTU. The New York City Gate price of natural gas closed at $6.27/m BTU.

August WTI on June 29 had climbed $0.27 to $72.46/b in electronic deals. In London, August Brent rose $0.68 to $72.09 in electronic trading. Oil futures were driven by data showing a larger than expected fall in US gasoline and crude oil stocks and strong gasoline demand. Crude oil futures had risen on June 28 after the US Energy Department's EIA said American stocks of gasoline had fallen 1m barrels to 212.4m in the week to June 23. Analysts' consensus forecast had been for a rise of 450,000 barrels. US crude oil stocks fell by 3.4m barrels to 343.7m.

Gasoline stocks took a pounding amid an ongoing driving season, during which Americans fill their tanks and hit the roads for summer holidays. The EIA said US demand for gasoline rose 1.2% in the week to June 23 to 9.54m b/d, matching its record high set for the first time in August 2005. Over the four previous weeks, US gasoline demand had run 0.9% higher than in the same period a year ago, showing demand was not as affected by high prices as first thought.

Saudi Arabia has offered the most compelling proof yet that record high prices are divorced from the realities of oil supply and demand. The world's biggest oil exporter dared to make a huge cut in its output through the second quarter but growing demand for oil was still satisfied. From July 2004 to March 2006 Saudi Aramco had been producing well in excess of 9m b/d, in part to keep the world's top two consumers - the US and China - supplied.

According to the IEA, OECD countries had enough crude oil in reserve in March to keep their refineries running for 25.9 days well above the norm. Crude oil stocks have risen further since then. "There is absolutely no relationship between price and supply and demand", Saudi Petroleum & Mineral Resources Minister Ali al-Naimi told pan-Arab daily al-Hayat. He said crude oil was worth no more than $50/b based on fundamentals.

Naimi has repeatedly said the crude oil price is determined by a market which brings together oil companies, traders, investment and hedge funds. Fellow OPEC oil ministers argue that it is the market which has pushed WTI from $20/b at the start of 2002 to a record of $75.35 in late April 2006. Disruption to exports from Nigeria and Iraq, tensions over Iran and the knowledge that oil will eventually run out have all contributed to the rally, with speculators in oil futures trading being among the top price drivers.