MARKET WATCH: Crude prices dip; OPEC takes no action

Crude prices declined slightly Dec. 4 as traders wondered if OPEC members might decide to raise its production by 500,000 b/d during its Dec. 5 meeting in Abu Dhabi.

Sam Fletcher
Senior Writer

HOUSTON, Dec. 5 -- Crude prices declined slightly Dec. 4 as traders wondered if the Organization of Petroleum Exporting Countries might decide to raise its production by 500,000 b/d during its Dec. 5 meeting in Abu Dhabi.

Most industry analysts, however, said they expected no change in OPEC production. Sure enough, OPEC members took no action since market fundamentals remained essentially unchanged, with commercial stocks of crude and petroleum products at comfortable levels in terms of days of forward cover. The continued volatility of energy prices is primarily the result of "the perception of market tightness by market players, exacerbated by nonfundamental factors, including the heavy influx of financial funds into commodities and speculative activity in the markets," said OPEC officials. They acknowledged geopolitical tensions also contributed to price volatility.

The conference assigned production allocations of 1.9 million b/d to new member Angola and 520,000 b/d to Ecuador, which recently rejoined OPEC. For the 12 members with official quotas, OPEC production allocations now total 29.67 million b/d; Iraq, the only member not bound by a quota, is still struggling to achieve its prewar production. OPEC members agreed to another extraordinary meeting Feb. 1 in Vienna; the group's next regular meeting is scheduled Mar. 5, also in Vienna.

In Paris, the International Energy Agency said lack of a formal production increase by OPEC "may do little to calm current market anxiety." However, IEA officials said OPEC's real production has been "much higher" than the group indicated at its September meeting when it raised production by 500,000 b/d effective Nov. 1. Much of the additional supply comes from Iraq and Angola. "And there are signs that more OPEC oil may be on its way in December," said IEA officials. "Our concern is that there are uncertainties that surround the sustainability of some of that supply, and winter demand is as variable as the weather. The market is clearly uncomfortable that it has lost some stock cover in recent months and with prices near $90/bbl it is telling producers it wants to see that flexibility restored," IEA said.

A Dec. 3 report that all 16 US spy agencies agree Iran stopped its nuclear weapon program in 2003 and hasn't yet revived it also helped undermine energy prices in the Dec. 4 trading sessions (OGJ Online, Dec. 4, 2007). That report "will reduce some risk premium [in energy prices] and further erosion could come out of Nigeria today," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, in a Dec. 5 report. "Nigeria remains a volatile environment, but we could see today militants in the Bayelsa state signing a new ceasefire agreement," he said.

US inventories
The Energy Information Administration said Dec. 5 commercial inventories of benchmark US crudes fell 8 million bbl to 305.2 million bbl in the week ended Nov. 30. Gasoline stocks jumped up 4 million bbl to 200.6 million bbl during the same period. Distillate fuel inventories increased 1.4 million bbl to 132.3 million bbl. Propane and propylene inventories decreased by 500,000 bbl to 61 million bbl.

Imports of crude into the US fell 980,000 b/d to 9.4 million b/d during that week. Input of crude into US refineries declined 20,000 b/d to 15.5 million b/d with refineries operating at 89.4% of capacity. Gasoline production increased to 9.1 million b/d, and distillate fuel production was up to 4.3 million b/d.

Energy prices
The January crude contract for US light, sweet crudes fell 99¢ to $88.32/bbl Dec. 4 on the New York Mercantile Exchange. The February contract dropped 83¢ to $88.11/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 99¢ to $88.33/bbl. The January heating oil contract inched up 0.07¢ to remain virtually unchanged at $2.51/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) increased 0.16¢ to close virtually unchanged at $2.25/gal.

The January natural gas contract lost 5.9¢ to $7.16/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 39.5¢ to $7.40/MMbtu.

In London, the January IPE contract for North Sea Brent dropped 27¢ to $89.53/bbl. Gas oil for December picked up $5 to $787.75/tonne.

The average price of OPEC's basket of 12 benchmark crudes gained $1.05 to $85.33/bbl on Dec. 4.

Contact Sam Fletcher at samf@ogjonline.com.

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