HOUSTON, Dec. 4 -- As was generally expected, ministers of the Organization of Petroleum Exporting Countries voted Thursday to retain their current production quota of 24.5 million b/d, pending another extraordinary meeting Feb. 10 in Algiers when they will again assess market conditions.
Energy futures prices continued to rally Wednesday in New York and London markets ahead of that meeting.
Despite recently increased estimates of world oil demand, the crude market remains well supplied, as evidenced by the continued build of inventories among member countries of the Organization for Economic Cooperation and Development, said OPEC officials.
Commercial US inventories of crude, excluding the US Strategic Petroleum Reserve, fell by 4.8 million bbl to 284.3 million bbl during the week ended Nov. 21, the US Energy Information Administration reported Wednesday. That's 19.7 million bbl short of the 5-year average for this time of year.
However, US stocks of gasoline jumped by 3.4 million bbl to 197.1 million bbl during that same period, still 9 million bbl below the 5-year average. Distillate inventories increased by 2.8 million bbl to 131.1 million bbl, with diesel fuel accounting for most of that rise, EIA officials said.
US imports of crude averaged 9.1 million b/d last week, down by 23,000 b/d from the previous week. "Increases in the East Coast, the Midwest, and the West Coast were offset by a significant decline in the Gulf Coast region and a smaller decline in the Rocky Mountain region," EIA reported. "It appears that crude oil imports from Iraq were the most they've been since the resumption of exports after the war."
Crude inputs into US refineries declined by 285,000 b/d to an average 9.1 million b/d in the week ended Nov. 28, said EIA.
The American Petroleum Institute said Wednesday that US crude stocks fell by 5.8 million bbl to 282.9 million bbl during that period, with distillate inventories increasing by 3.1 million bbl to 131.9 million bbl and gasoline stocks up by 2.4 million bbl to 198.3 million bbl.
"The second successive week with imports close to 9.1 million b/d has led to the second straight large fall, and this week it is almost exclusively confined to the key areas of the US oil market," said Paul Horsnell, Barclays Capital Inc., London, referring to IEA numbers. "Falling imports and rising refinery runs provide a bullish context for the crude oil market."
Call for compliance
OPEC ministers Thursday reiterated their call for strict compliance with current production quotas among members.
At their last meeting in September, OPEC members agreed to reduce production by 900,000 b/d, effective Nov. 1. However, Geneva-based Petrologistics recently estimated that OPEC exceeded its cumulative production ceiling by a total of 1 million bbl in November (OGJ Online, Nov. 25, 2003).
"In fact, most 'barrel counters' agree that OPEC production has increased each month since June," said Frederick P. Leuffer and Nicole L. Decker, analysts with Bear, Stearns & Co. Inc., New York, in a Nov. 25 report. "All [active] OPEC members, except for Indonesia and Venezuela, continue to cheat on production quotas" (OGJ Online, Dec. 1, 2003).
High price levels
At their meeting Thursday, OPEC officials blamed "prevailing geopolitical concerns," not market fundamentals, for keeping world oil prices at or above the top limits of their $22-28/bbl target. They also noted "with some concern, the decline in the purchasing power" of current high oil prices because of the weakness of the US dollar versus other major currencies.
"If one views the world through [US] dollar glasses, oil prices will currently appear to be very high. However, think in terms of euros (or indeed most other major currencies), and prices look considerably more benign, indeed even weak," Horsnell said in a Dec. 3 report.
Rather than eventually shifting its target price band "one way or the other" to make up the loss of purchasing power, OPEC might instead stop "thinking about price targets exclusively in [US] dollar terms," he said.
Recalculating the average price of OPEC's basket of seven benchmark crudes by another currency index instead of US dollars would not be "particularly difficult and does not in itself have to involve selling any physical oil on a non-dollar basis," Horsnell noted. "At the very least, the dollar's weakness might allow ministers to begin to stop regarding $30[/bbl for West Texas Intermediate] as necessarily representing an excessively high price," he said.
The January contract for benchmark US sweet, light crudes gained 32¢ to $31.10/bbl Wednesday on the New York Mercantile Exchange, while the February contract advanced by 31¢ to $30.93/bbl. On the US spot market, WTI at Cushing, Okla., was up by 35¢ to $31.13/bbl.
Unleaded gasoline for January delivery increased by 1.46¢ to 85.64¢/gal Wednesday on NYMEX. Heating oil for the same month rose by 0.36¢ to 86.62¢/gal. The January natural gas contract surged by 17.7¢ to $5.76/Mcf Wednesday, "buoyed by a late rally in crude oil, a cold snap in the Northeast, and more technical buying" as rising prices broke through resistance points, said analysts Thursday at Enerfax Daily.
However, they said many traders still expect "long-term bearish fundamentals" to limit the upside price potential for gas, "particularly when the season's first arctic blast subsides."
Meanwhile, EIA early Thursday reported the withdrawal of 59 bcf of natural gas from US underground storage during the week ended Nov. 28, well above the consensus of Wall Street analysts for that period. US gas storage now is less than 3.1 tcf, representing surpluses of 139 bcf above year-ago levels and 117 bcf above the 5-year average for this time of year.
In London, the January contract for North Sea Brent oil gained 20¢ to $29.14/bbl Wednesday on the International Petroleum Exchange. Gas oil for December delivery lost $1.50 to $251.75/tonne in that market, but the January natural gas contract increased by 7.9¢ to the equivalent of $5.69/Mcf on IPE.
The average price for OPEC's basket of benchmark crudes gained 25¢ to $28.68/bbl Wednesday.
Thursday's meeting marked the end of Alvaro Silva Calderon's tenure as secretary general of OPEC. Members voted that OPEC Conference President Abdulla bin Hamad Al-Attiyah, energy minister of Qatar, assume the additional responsibilities of that office until a new secretary general is elected.
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