Sam Fletcher
Senior Writer
HOUSTON, Sept. 12 -- Energy prices continued to tumble Sept. 11 with crude futures hitting a new 5-month low on the New York market as the Organization of Petroleum Exporting Countries took no action to curb production at its meeting in Vienna.
"The cartel did not change its official production target of 28 million b/d. However, OPEC decided to let production fluctuate rather than adhere to a specific quota system," said Wayne Andrews and Pavel Molchanov, market analysts in the Houston office of Raymond James & Associates Inc. "This would allow members to individually cut production in case oil prices continued to slide. With the recent drop in crude prices, the cartel is setting up ground work to support prices in case of weakening global demand; and whispers coming from the meeting suggest a floor would be far closer to $60[/bbl] than $50."
OPEC said it would reassess market conditions at its Dec. 14 meeting in Nigeria (OGJ Online, Sept. 11, 2006). Energy prices also were undercut by new indications that Iran may yet agree to a temporary halt of its uranium enrichment program.
"OPEC is 'vigilantly monitoring' the combination of rising inventories and easing political tensions," said Andrews and Molchanov. "Various member country delegates have been expressing concerns, off the record, regarding the sharp pullback in oil prices over the past month. Look for intensified 'jawboning' out of OPEC if oil approaches the $60[/bbl] level. All we can say is that they have clearly gotten used to the good times."
Meanwhile, the US Department of Commerce reported Sept. 12 that the US trade deficit jumped by 5% to a record $68 billion in July as high prices hiked the bill for imported oil to an historic high. The former record deficit was $66.6 billion last October.
Separately, Nigeria's oil workers' unions are slated to strike Sept. 13. "After meeting with federal government authorities in Abuja, two of Nigeria's unions decided to proceed with their 3-day warning strike tomorrow," said Raymond James analysts. "Workers want security ramped up, seeing as there have been more than 50 oil workers kidnapped this year in Nigeria. It is estimated that more than 20,000 workers will participate in the strike. The strike is expected to be felt in all segments of Nigeria's oil industry including production," they said.
IEA cites price decrease
US gasoline futures prices plunged 30% in August, pulling benchmark US crude futures below $67/bbl, the International Energy Agency in Paris reported Sept. 12. "The end to the driving season combined with higher refinery runs, US gasoline stocks surpassing 5-year highs, and the successful completion of the switch to ethanol-blended gasoline pushed prices lower," it said.
IEA reduced its outlook for global demand for crude, down by 100,000 b/d to 84.7 million b/d in 2006 and by 160,000 b/d to 86.2 million b/d in 2007. "North America accounted for most of the change, with large revisions to both US and Mexican demand. Milder, rainy weather dampened Asian demand in both the Organization for Economic Cooperation and Development and non-OECD [countries]," said IEA analysts.
World crude supplies fell by 400,000 b/d in August to 85.8 million b/d, primarily because of reduced production from the North Sea, Iran, and Saudi Arabia. IEA again reduced its projection for non-OPEC supplies, down by 60,000 b/d to 51 million b/d in 2006 and by 145,000 b/d to 52.8 million b/d in 2007, with downward revisions of production from the North Sea, Mexico, Brazil, and Angola.
OPEC production in August averaged 30 million b/d, 270,000 b/d below IEA's upward-revised July base. "Pipeline outages continue to restrict supply from Iraq and Nigeria," said IEA. "An unchanged call on OPEC crude and stock change averages 28.9 million b/d in 2006 and 28.4 million b/d in 2007."
Energy prices
The October contract for benchmark US sweet, light crudes traded at $64.85-66.50/bbl Sept. 11 before closing at $65.61/bbl, down by 64¢ for the day on the New York Mercantile Exchange. That was the lowest closing price for a front-month crude contract on NYMEX since Mar. 27. The November contract dropped 79¢ to $66.59/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 64¢ to $65.62/bbl.
"This sell-off to begin the shoulder season, the period between the end of the summer and the beginning of heating season, has forced many energy [company] stocks near 52-week lows. Energy investors should weather this latest storm, as we feel calmer weather will be ahead of us," said Raymond James analysts. "The energy up cycle is very much intact, despite what some bears may be saying now."
Heating oil for October delivery dropped 3.78¢ to $1.81/gal on NYMEX. Unleaded gasoline for the same month lost 1.45¢ to $1.59/gal. The October natural gas contract slipped by 0.5¢ to $5.67/MMbtu.
In London, the October IPE contract for North Sea Brent crude decreased by 78¢ to $64.55/bbl. The September gas oil contract dropped $19 to $576.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes fell by $1.15 to $60.89/bbl on Sept. 11.
Contact Sam Fletcher at [email protected].