Sam Fletcher
Senior Writer
HOUSTON, Dec. 14 -- Energy prices climbed Dec. 13 in the New York market in reaction to drops in US petroleum liquids inventories and in anticipation that members of the Organization of Petroleum Exporting Countries would agree to another production cut.
At their Dec. 14 special meeting in Abuja, Nigeria, OPEC officials "noted with satisfaction" that the decision at their October meeting to reduce production by 1.2 million b/d to 26.3 million b/d effective Nov. 1 "succeeded in stabilizing the market and bringing it into balance, although prices remain volatile."
Many industry observers say OPEC so far has cut back earlier production by only 800,000 b/d at most. Nevertheless, OPEC ministers voted Dec. 14 to reduce production by an additional 500,000 b/d to 25.8 million b/d effective Feb. 1 "in order to balance supply and demand."
OPEC's latest move "basically comes out to nothing," said Olivier Jakob, managing director of Petromatrix Gmbh, Zug, Switzerland. "It is only illustrative of the disagreement within OPEC of the need for any further cuts; buying some more time and letting the market dictate through prices what should be the next step for OPEC," Jakob said.
"If there is a strong price crash then OPEC would cut (but this would be expected anyway); if there is a price increase it will continue to not respect the previous agreement (this is also somehow expected)." Jakob said. "OPEC could not comply [with the earlier proposed production cut] below $60/bbl so we should not expect them to comply better above $60/bbl."
Moreover, he said, "We are somehow back to having Saudi Arabia as the swing balancing producer. While the rest of OPEC will continue with the cheating, this creates a framework where it takes a longer period of time to significantly tighten the crude oil supply and demand."
The "additional problem" for OPEC since its October meeting is the dollar index has dropped 4%, "which in terms of OPEC revenues is equivalent to an additional production cut," said Jakob. While crude prices are now higher than they were in mid-October, the weakness of the US dollar has offset those price gains and reduced OPEC's revenue. "OPEC [members] would need a stronger dollar to encourage less cheating and better enforce their output cut decisions," Jakob said.
US inventories
The US Energy Information Administration said commercial US crude inventories fell by 4.3 million bbl to 335.4 million bbl in the week ended Dec. 8. Gasoline stocks slipped by 100,000 bbl to 199.9 million bbl in the same period, below the average range for that time of year. Distillate fuel inventories declined by 500,000 bbl to 131.9 million bbl, with a drop in heating oil more than offsetting a slight rise in diesel fuel.
Imports of crude into the US declined by 701,000 b/d to 9.6 million b/d in that period. Input of crude into US refineries was down by 169,000 b/d to 15.3 million b/d, with units operating at 89.1% of capacity. However, gasoline production increased to 9.3 million b/d, while distillate fuel production declined to 4 million b/d.
Energy prices
The January contract for benchmark US sweet, light crudes gained 35¢ to $61.37/bbl Dec. 13 on the New York Mercantile Exchange. The February contract increased by 18¢ to $62.17/bbl. Unleaded gasoline for January delivery rose by 2.24¢ to $1.62/gal on NYMEX. Heating oil for the same month was up by 0.96¢ to $1.73/gal.
The January natural gas contract escalated by 24.3¢ to $7.67/MMbtu on NYMEX. On Dec. 14, EIA reported the withdrawal of 168 bcf of natural gas from US underground storage in the week ended Dec. 8., compared with withdrawals of 11 bcf the previous week and 206 bcf during a much colder period at the same time a year ago. Still, the latest withdrawal exceeded the consensus of Wall Street analysts. US gas storage is now at 3.2 tcf, 245 bcf more than the same period a year ago and up by 225 bcf from the 5-year average.
In London, the January IPE contract for North Sea Brent crude dropped 19¢ to $61.33/bbl. However, the January contract for gas oil gained $2.75 to $547.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes lost 41¢ to $57/bbl on Dec. 13.
Contact Sam Fletcher at [email protected].
