Market watch: Norway's plan to curtail June output hikes oil futures prices

Petroleum futures prices shot up Tuesday with reports that Norway plans to curtail its oil production in June to adhere more closely to guidelines of an output agreement among the Organization of Petroleum Exporting Countries and five non-member producers last December.

May 15, 2002

3 min read

By OGJ editors

HOUSTON, May 15 -- Petroleum futures prices shot up Tuesday with reports that Norway plans to curtail its oil production in June to adhere more closely to guidelines of an output agreement among the Organization of Petroleum Exporting Countries and five non-member producers last December.

OPEC reduced its members' production quotas by 1.5 million b/d, effective in January, after eliciting production cuts of 150,000 b/d from Norway, 40,000 b/d from Oman; and 22,500 b/d from Angola. Russia and Mexico also pledged to reduce their oil exports by 150,000 b/d and 100,000 b/d, respectively (OGJ Online, Jan. 3, 2002).

The International Energy Agency, Paris, warned Monday that world oil supplies will tighten if OPEC fails to increase production by the end of the third quarter (OGJ Online, May 14, 2002). However, OPEC ministers have indicated they have no intention of changing production quotas at their next meeting in June.

"There is no convincing reason for OPEC oil ministers to raise the output ceiling in June, as long as all the data, especially those provided by IEA, point to a foreseeable immediate decline of 2% in demand ahead of the coming low season and a further gradual decline in the next few months," Qatari Minister of Energy and Industry Abdullah Bin Hamad Al Attiyah told reporters Tuesday in Riyadh.

Al Attiyah praised the cooperation among OPEC and the five non-member producers in the wake of the December production agreement.

The June contract for benchmark US light, sweet crudes jumped 98¢ to $29.36/bbl Tuesday on the New York Mercantile Exchange. The July contract also shot up 78¢ to $28.40/bbl. However, those contracts dropped to $29.09/bbl and $28.17/bbl, respectively, in after-hours electronic trading, following an American Petroleum Institute report of increases in US inventories of gasoline and distillate fuel stocks.

API said late Tuesday that US inventories of gasoline increased by nearly 2.1 million bbl to 216.5 million bbl last week. Distillate fuel oil stocks also gained 1.6 million bbl to 122.4 million bbl.

However, US crude stocks fell almost 7.4 million bbl to 313.7 million bbl last week. US refineries were operating at 92.5% of capacity last week, down slightly from 93.2% the previous week.

During regular trading Tuesday on NYMEX, unleaded gasoline for June delivery surged 2.9¢ to 82.63¢/gal. Heating oil for the same month was up 2.23¢ to 71.68¢/gal. The June natural gas contract gained 7.2¢ to $3.86/Mcf.

In London, the June contract for North Sea Brent oil rose 73¢ to $27.31/bbl on the International Petroleum Exchange. However, the June natural gas contract dropped 1.8¢ to the equivalent of $1.74/Mcf on the IPE.

The average price for OPEC's basket of seven crudes increased by 49¢ to $26.44/bbl Tuesday.