Sam Fletcher
Senior Writer
HOUSTON, Oct. 11 -- Energy prices fell heavily Oct. 10, wiping out virtually all gains from the previous trading session, amid confusion over whether the Organization of Petroleum Exporting Countries will actually cut crude production by 1 million b/d and, if so, when.
Crude futures prices tumbled below $59/bbl with the lowest closing in nearly 15 months on the New York market.
"OPEC has finalized an agreement to cut actual production by 1 million b/d. This is not a cut from production ceilings but is rather a 'voluntary' cut that will be made on 'a member by member' basis," said Levi Ajuonuma, a spokesman for OPEC's president. "We expect this to buoy oil prices above the current $60/bbl watermark," said J. Marshall Adkins in the Houston office of Raymond James & Associates Inc.
Other analysts doubt if OPEC members already producing below their quotas will reduce production any further, however. "The International Energy Agency believes that OPEC's effective spare production capacity (which excludes Iraq, Venezuela, Indonesia, and Nigeria) is only 2 million b/d," said Jacques Rousseau, senior energy analyst at Friedman, Billings, Ramsey Group Inc., Arlington, Va.
The US Energy Information Administration estimates the 10 OPEC members other than Iraq are currently producing 27.6 million b/d of crude, down from their total quota of 28 million b/d. However, Rousseau said, "OPEC (including Iraq) produced 29.8 million b/d of crude oil in September and needs to produce 29.5 million b/d in the fourth quarter of 2006 and 29 million b/d in the first quarter of 2007 to balance global supply-demand (this total is referred to as the Call on OPEC). There has been a lot of discussion about potential OPEC production cuts, but, as we can see by looking at the numbers, OPEC really does not need to remove supply from the market until the first quarter. However, we think it will occur before that due to the recent crude oil price decline."
Paris-based IEA estimated Saudi Arabian crude oil production dropped 110,000 b/d to 8.91 million b/d in September.
In its monthly report, IEA reduced its estimates of global oil demand for the rest of 2006 and for 2007. "This is the second trimming in 2 months, as the agency cites the effect of high crude prices and slowing US economic growth," Adkins said.
IEA cut its previous estimate for 2006 world demand by 110,000 b/d to 84.57 million b/d. It reduced its 2007 estimate by 200,000 b/d to 86.02 million b/d. IEA attributed the weak demand growth to substitution away from fuel oil to natural gas, particularly in the US. It reported North American oil demand would decline by 0.1% in 2006, down from an earlier estimate of 0.2% growth. World oil demand is now expected to rise 1.2% in 2006 and 1.7% in 2007, driven primarily by China, with growth rates of 6.4% and 5.5%, respectively.
Energy prices
The November contract for benchmark US light, sweet crudes dropped $1.44 to $58.52/bbl Oct. 10 on the New York Mercantile Exchange. The December contract lost $1.23 to $60.26/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $1.44 to $58.53/bbl. Heating oil for November delivery fell by 4.88¢ to $1.68/gal. Unleaded gasoline for the same month continued dropping, down 2.81¢ to $1.47/gal. However, the November natural gas contract gained 3.7¢ to $6.47/MMbtu on NYMEX.
In London, the November IPE contract for North Sea Brent crude dropped $1.20 to $59.34/bbl. Gas oil for October lost $12.75 to $537.50/tonne.
The average price for OPEC's basket of 11 benchmark crudes dipped by 39¢ to $55.31/bbl on Oct. 10.
Contact Sam Fletcher at [email protected].
