Sam Fletcher
Senior Writer
HOUSTON, Dec. 15 -- Crude futures prices rose to their highest closing in 2 weeks in the New York market Dec. 14 as the Organization of the Petroleum Exporting Countries agreed to another production cut, down 500,000 b/d to 25.8 million b/d this time, effective Feb. 1.
At their previous meeting in October, OPEC members agreed to a reduction of 1.2 million b/d effective Nov. 1. However, industry analysts say OPEC has curtailed only 800,000 b/d at most, after first increasing production in October.
"The decision to curtail production for the second time comes on the back of high crude stockpiles in the US and Organization for Economic Cooperation and Development nations, concerns of slowing global growth in 2007, and the pullback in the [US] greenback that has eroded the purchasing power of OPEC members," said analysts in the Houston office of Raymond James & Associates Inc. "Going forward, the market will remain skeptical as to the magnitude of the announced cut that will actually be taken off the market come February."
OPEC's latest cut "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," he said (OGJ Online, Dec. 14, 2006).
Nevertheless, Raymond James analysts said: "The cartel seems determined to continue its quest to defend $60/bbl as a price floor for crude oil. On a further note, the cartel has approved the induction of its newest member, Angola. The second-largest producer in Africa will join the cartel in 2007 adding strength to OPEC's muscle." Because it has not yet returned to its prewar production level, Iraq is not subject to OPEC production quotas.
Meanwhile, Raymond James said, "Unrest in Nigeria continues to take a toll on oil production. Armed guerillas attacked a Royal Dutch Shell oil complex in Nigeria and abducted three employees. The incident has forced Shell to shut in 12,000 b/d in production (OGJ Online, Dec. 15, 2006)." Civil unrest and violence in the oil-rich Niger River delta has shut in 600,000-800,000 b/d of crude production, industry sources report.
Energy prices
The January contract for benchmark US light, sweet crudes gained $1.14 to $62.51/bbl Dec. 14 on the New York Mercantile Exchange. The February contract advanced by $1.16 to $63.33/bbl. On the US spot market, West Texas Intermediate increased by $1.14 to $62.52/bbl. Heating oil for January delivery escalated by 4.45¢ to $1.78/gal on NYMEX. Unleaded gasoline for the same month rose by 4.76¢ to $1.67/gal.
The January natural gas contract lost 11.8¢ to $7.56/MMbtu on NYMEX, however, as the US Energy Information Administration 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 the same time last year. The latest withdrawal exceeded the consensus of Wall Street analysts, but markets still worry that an oversupply of gas will push prices lower. 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. On the US spot market, gas at Henry Hub, La., dipped by 3¢ to $7.19/MMbtu.
In London, the January IPE contract for North Sea Brent crude gained 79¢ to $62.12/bbl. Gas oil for January increased by $6.25 to $554/tonne.
The average price for OPEC's basket of 11 benchmark crudes climbed by 43¢ to $57.43/bbl Dec. 14.
Contact Sam Fletcher at [email protected].