MARKET WATCHEnergy prices mixed after OPEC cancels meeting

Oil prices dipped Thursday after the Organization of Petroleum Exporting Countries canceled its scheduled July 21 meeting but said it will go ahead with the planned 500,000 b/d increase of its production quota to 26 million b/d effective Aug. 1.

July 16, 2004

3 min read

Sam Fletcher
Senior Writer

HOUSTON, July 16 -- Oil prices dipped Thursday after the Organization of Petroleum Exporting Countries canceled its scheduled July 21 meeting but said it will go ahead with the planned 500,000 b/d increase of its production quota to 26 million b/d effective Aug. 1.

Markets generally accepted this as a signal that OPEC ministers consider the supply and demand for crude to be essentially balanced. However, analysts at Merrill Lynch Global Securities Research & Economics Group, New York, said that move "seemed to largely reflect a Saudi [Arabian] decision to preempt dissenting opinions about the need to hike the group's production ceiling. Some of the cartel's capacity-constrained members were also expected to raise unwelcome discussions about adjusting up OPEC's targeted price band which, admittedly, stands well below the range we've been trading in since last fall."

Despite optimism among traders, the quota increase may not translate into an actual production increase, based on indications that the 10 OPEC members, other than Iraq, that are still subject to quota may already the producing in excess of 26 million b/d.

Meanwhile, preliminary data suggest "that global oil demand during the [second quarter] period ran 4.5 million b/d over the corresponding year-ago period, which is unprecedented looking back over the past 20 years of data. While we can dance around questions about actual oil use and areas of the world where we believe economic growth is 'robust,' we have no confidence in saying that this volume of oil is actually being burned, or turned into plastic, for that matter," said Merrill Lynch analysts in a weekly report issued Friday.

Energy prices
The August contract for benchmark US light, sweet crudes lost 20¢ to $40.77/bbl Thursday on the New York Mercantile Exchange, while the September contract lost 22¢ to $40.93/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., retreated by 20¢ to $40.78/bbl.

However, futures prices for petroleum products rose on NYMEX as a result of refinery problems and speculators' influence on recent price highs, analysts said. Heating oil for August delivery gained 0.69¢ to $1.0968/gal Thursday, while gasoline for the same month increased by 0.42¢ to $1.3202/gal.

After the second consecutive weekly report by the US Energy Information Administration of larger-than-expected injections into US natural gas storage (OGJ Online, July 15, 2003), the August natural gas contract fell by 13.1¢ to $5.85/Mcf Thursday on NYMEX.

In London, the August contract for North Sea Brent crude lost 43¢ to $38.11/bbl Thursday on the International Petroleum Exchange. However, gas oil for August delivery increased by $9.25 to $348/tonne. The August natural gas contract inched up by 0.76¢ to the equivalent of $4.04/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes gained 79¢ to $36.58/bbl Thursday.

Contact Sam Fletcher at [email protected]