MARKET WATCHCrude futures prices fall below $40/bbl

May 24, 2004
For the first time in more than a week, crude futures prices fell below $40/bbl Friday, as Saudi Arabian Minister of Petroleum Ali I. Al-Naimi called for the Organization of Petroleum Exporting Countries to increase its production quota by 2 million b/d to 25.5 million b/d.

By OGJ editors

HOUSTON, May 24 -- For the first time in more than a week, crude futures prices fell below $40/bbl Friday, as Saudi Arabian Minister of Petroleum Ali I. Al-Naimi again called for the Organization of Petroleum Exporting Countries to increase its production quota by 2 million b/d to 25.5 million b/d.

In an interview published Sunday by Al Hayat newspaper, Al-Naimi seemed to raise the ante, saying OPEC should raise its quota ceiling by 2.3-2.5 million b/d. He said Saudi Arabia could increase its oil production to 10.5-11 million b/d from 9.1 million b/d currently. He also was quoted as saying a crude price of $30-35/bbl. would be relatively harmless in a market that fears prices could hit $50/bbl.

Some analysts continued to downplay the likelihood of a production increase, however. "We would note that OPEC is already producing close to 2 million b/d above its current target," said Robert S. Morris, Banc of America Securities LLC, New York, in a Monday report.

At the end of the Ninth International Energy Forum in Amsterdam attended by OPEC officials, Purnomo Yusgiantoro, OPEC secretary general and conference president, said Monday that OPEC ministers had "deliberated on proposals advanced by some member countries to increase production in line with OPEC's commitment to do whatever it can to ensure market stability and also ensure adequate supply to support world economic growth."

However, Purnomo, blamed "a number of factors" for recent high energy prices, including bottlenecks in the refining and transportation of gasoline in some consuming countries; increased geopolitical tensions in some producing countries; speculation in energy futures markets; and "significant upward revisions in global demand" for crude.

At the Amsterdam conference, he called for "joint efforts" to bring prices down "within the agreed amount acceptable to producers and consumers." Nonetheless, he said, "Being an informal consultative meeting, no decision was expected to come from it."

Crude prices may moderate over the short term but are likely to undergo "a period of sustained rises" that will make recent increases seem like "just a practice run," said analysts Monday at Douglas-Westwood Ltd., Canterbury.

Recently increased demand for crude and petroleum products among developing countries is likely to accelerate, but the world's known and estimated yet-to-find reserves and resources cannot sustain production levels of 80 million b/d beyond 2020, said company analysts.

Meanwhile, Middle East oil producers need to invest $750 billion through 2030 to boost production to meet projected world demand, said Obaid bin Saif Al-Nasseri, UAE energy minister. But first, he said, that region must have political stability and security to attract the necessary investment.

Energy prices
The new near-month July contract for benchmark US light, sweet crudes dropped 87¢ to $39.93/bbl Friday on the New York Mercantile Exchange. The August contract lost 84¢ to $39.56/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., fell by 95¢ to $39.38/bbl.

Gasoline for June delivery plunged by 3.34¢ to $1.4168/gal Friday on NYMEX, while heating oil for the same month dropped by 3.11¢ to 99.6¢/gal. However, the June natural gas contract gained 2.9¢to $6.35/Mcf, "lifted by warmer weather forecasts for this week despite softer week [natural gas spot market] cash prices and a sharp slide in crude oil prices," said analysts Monday at Enerfax Daily.

In London, the July contract for North Sea Brent crude lost 75¢ to $36.51/bbl Friday. Gas oil for June delivery declined by $12.50 to $313.75/tonne, while the June natural gas contract lost 3.6¢ to the equivalent of $3.80/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes plummeted by $1.04 to $36.40/bbl Friday. So far this year, it has averaged $31.88/bbl, officials said.