Sam Fletcher
Senior Writer
HOUSTON, Oct. 10 -- The front-month crude contract jumped above $61/bbl briefly Oct. 9 on the New York market on reports that Saudi Arabia, Libya, Algeria, Kuwait, Venezuela, and Nigeria agreed to cut total production by 1 million b/d, but it closed just below $60/bbl after officials said the Organization of Petroleum Exporting Countries will not meet to formalize that reduction.
"The situation surrounding OPEC continues to read like a supermarket tabloid, leaving traders (and analysts) befuddled while trying to sift through the rhetoric," said analysts in the Houston office of Raymond James & Associates Inc. in an Oct. 10 report. "Oil gained only slightly yesterday, settling just below $60[bbl], as a letter surfaced from OPEC President [Edmund] Daukoru calling for a production cut of 1 million b/d from OPEC's current output (rather than from its official ceiling of 28 million b/d). He discounted reports of any formal agreement by the organization and stated that an emergency session would not be needed. Speculation still surrounds the production cuts as Saudi Aramco, the world's largest state oil company, has apparently decided to limit shipments to global oil majors, but is keeping its previous commitments to Asian refiners," they said.
In a separate report, analysts with the Société Générale group said: "Confronted with the speed at which crude prices dropped, breaking below the $60/bbl mark, the market waited for OPEC's reaction, and thus we were not surprised to see OPEC evoke the principle of a [production] cut. In contrast, the manner in which they did so has left us puzzled. OPEC had not decided to reduce its quotas for nearly 2 years now (since September 2004) and since then, the market has paid little attention to either OPEC meetings or to its over-production. As a consequence, the announcement of a return to real quota discipline must be credible in order to curb the decline. Instead, it is rather the opposite which is currently occurring."
Raymond James analysts said, "Geopolitical tension should further support prices, as an oil-flow station in Nigeria reportedly has been seized."
Energy prices
The November contract for benchmark US sweet, light crudes traded as high as $61.30/bbl Oct. 9 before closing at $59.96/bbl, up by 20¢ for the day on the New York Mercantile Exchange. The December contract gained 32¢ to $61.49/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 20¢ to $59.97/bbl. Heating oil for November delivery increased by 3.57¢ to $1.73/gal. Unleaded gasoline for the same period dipped by 0.93¢ to $1.49/gal.
The November natural gas contract inched up by 0.2¢ but was essentially unchanged at $6.43/MMbtu on NYMEX. "On the natural gas front, prices rallied for the eighth consecutive session," said Raymond James analysts. "This was largely due to reports of a cold front moving through the Midwest, which is expected to spread colder temperatures into the Northeast around week's end. Additionally, technical trading (short covering) also acted to drive the upside in natural gas. This was exemplified by the Commodity Futures Trading Commission report detailing the net noncommercial position represented its largest long position over the past few years, and the largest long position on record since Aug. 24, 1999."
In London, the November IPE contract for North Sea Brent crude rose 71¢ to $60.54/bbl. The October gas oil contract jumped by $21 to $550.25/tonne.
The average price for OPEC's basket of 11 benchmark crudes increased by 47¢ to $55.52/bbl. So far this year, OPEC's basket price has averaged $62.56/bbl.
Contact Sam Fletcher at [email protected].
