Another production hike by the Organization of Petroleum Exporting Countries, amid mild weather, is likely to continue pushing back oil and natural gas prices, industry analysts said Monday.
OPEC's move for an immediate production increase surprised traders Friday, triggering a heavy sell-off that sent energy futures tumbling. Market analysts had expected OPEC to follow its usual pattern of delaying action until its next scheduled meeting Nov. 12 in Vienna.
But Venezuela Energy Minister Ali Rodriguez Araque, who is also meetings president for the cartel, asked for another increase of 500,000 b/d in OPEC production by Tuesday. The OPEC news agency said some OPEC members are already working to implement production increases by midnight Monday.
The December contract for the benchmark US light, sweet crudes dropped 97� to $32.70/bbl Friday on the New York Mercantile Exchange, while the January contract fell $1.09 to $31.68/bbl.
Unleaded gasoline for November lost 3.62� to 96.02�/gal on the NYMEX, while home heating oil for the same month was down 1.32� to 97.42�/gal. The November contract for natural gas plummeted 12.3� to $4.54/Mcf.
In London, the December contract for North Sea Brent crude fell $1.01 to $30.91/bbl Friday on the International Petroleum Exchange. The November natural gas contract also lost 8� to the equivalent of $3.65/Mcf on the IPE.
However, the December Brent contract increased slightly to $31/bbl in Monday morning trading on the IPE in London. That might indicate that the market has already digested OPEC's latest increase in production, unless the NYMEX proves to be more bullish, brokers said.
In overnight trading on the Singapore market, North Sea Brent for December delivery was down $1.01 to $30.95/bbl, while the January contract dropped $1 to $30.35/bbl.
Friday marked the 20th consecutive trading day that world markets had exceeded $28/bbl, triggering OPEC's unofficial price band mechanism for a 500,000-b/d increase in production. Obaid Bin Saif Al-Nasseri, oil minister for the United Arab Emirates, said the production hike was necessary to strengthen OPEC's credibility in its efforts to cool down the overheated oil futures market.
The average price for OPEC's basket of seven crudes dipped 23� to $30.91/bbl Friday. But for the full week, it averaged $31.06/bbl, up from an average $30.84/bbl the previous week.
So far this year, OPEC's basket price has averaged $27.51/bbl, up sharply from $17.47/bbl in all of 1999 and $12.28/bbl in 1998.
Excluded from the latest OPEC production increase, Iraq meanwhile is threatening to suspend its oil production unless the United Nations grants its request to switch its oil account to euros instead of dollars. "Thus, it appears that the momentum for crude oil prices will continue to ebb near term," said Robert Morris of Salomon Smith Barney Inc. in his weekly exploration and production report Monday.
Warmer weather also will likely allow a "healthy" amount of gas to be injected into winter storage again this week. "It now appears that storage levels will enter the winter at 2,700-2,750 bcf, compared with 3,000 bcf last year, " Morris said.
However, he noted that forecasters are calling for a perhaps colder-than-normal November that could turn gas prices around.
