Market watch: Prices fall on alleged production quota noncompliance

Energy futures prices fell Friday with speculation that members of the Organization of Petroleum Exporting Countries still are producing more oil than previously agreed. The February contract for benchmark US light, sweet crudes dropped 70¢ to $19.68/bbl on the New York Mercantile Exchange.

Jan. 14, 2002

3 min read

By the OGJ Online Staff

HOUSTON, Jan. 14 -- Energy futures prices fell Friday with speculation that members of the Organization of Petroleum Exporting Countries and perhaps other nonmember producers are still producing and exporting more oil than they previously agreed.

The Cyprus-based Middle East Economic Survey (MEES) reported over the weekend that OPEC still exceeded its own production quotas last month, despite a production drop of 730,000 b/d to total 25.77 million b/d (OGJ Online, Jan. 14, 2002).

Daily output from the 10 OPEC participants in the group's previous quota agreement declined by 10,000 b/d to 23.77 million b/d in December. That was 569,000 b/d above OPEC's previous target of 23.201 million b/d, with Nigeria, the biggest culprit, producing 300,000 b/d a day in excess of its agreed quota. OPEC members agreed in December to an additional quota reduction of 1.5 million b/d starting Jan. 1.

Because its oil exports are still restricted by the United Nations under an aid-for-oil program, Iraq is not a participant in either quota agreement. However, MEES officials said that a 720,000 b/d fall in Iraqi production following a dispute with the UN over pricing accounted for most of the decline in OPEC's total production last month.

The February contract for benchmark US light, sweet crudes dropped 70¢ to $19.68/bbl on the New York Mercantile Exchange. The March contract also lost 58¢ to $20.32/bbl.

Sales increased during Friday's session as rumors spread that OPEC was exceeding its production quotas. February and March positions continued to decline in after-hours electronic trading to $19.57/bbl and $20.24/bbl, respectively.

Unleaded gasoline for February delivery also plunged 1.65¢ to 57.31¢/gal during the regular session Friday. Home heating oil for the same month fell 1.39¢ to 53.94¢/gal. However, the February natural gas contract increased 1.9¢ to $2.20/Mcf on the NYMEX.

In London, futures prices for North Sea Brent crude slipped below $21/bbl at the International Petroleum Exchange amid expectations that warmer weather and increased oil inventories will increase excess supplies in the US market.

The February North Sea Brent position lost 43¢ to $20.86/bbl Friday after trading in a range of $20.60-$21.25/bbl on the IPE. The February natural gas position dipped by 0.89¢ to the equivalent of $3.80/Mcf.

The average price for OPEC's benchmark basket of seven crudes lost 34¢ to $18.53/bbl Friday. For all of last week, however, that average basket price was up 80¢ to $19.30/bbl.

For January so far the basket price has averaged $18.90/bbl, up from a December average of $17.53/bbl. OPEC's basket price averaged $23.12/bbl for all of 2001, down from the previous year's average of $27.60/bbl.