Market watch, Sept. 11

Energy futures prices likely will continue to decline today following a decision by the Organization of Petroleum Exporting Countries to increase its crude production by 800,000 b/d, or 3%, to 26.2 million b/d.


Energy futures prices likely will continue to decline today following a decision by the Organization of Petroleum Exporting Countries to increase its crude production by 800,000 b/d, or 3%, to 26.2 million b/d.

OPEC officials meeting in Vienna said early Monday they would hike production to help stabilize rising energy prices, "despite the fact that the level of supply to the market exceeds anticipated demand." They have said they would like to see prices stabilize in the range of $22-28/bbl.

OPEC members again "emphasized that the (price) confusion in the oil market is basically as a result of shortages in the products' markets caused by bottlenecks in the refining industry, speculation in the futures market, manipulation of the Brent market due to the dwindling volumes of this crude, and widening differentials between light, sweet and heavy, sour crudes."

They expressed "dismay that the governments of the European Union nations fail to recognize the role which their excessive domestic taxation of petroleum products plays in the high pump prices being paid by consumers."

OPEC officials plan to meet again on Nov. 12 to review the situation.

Some analysts say that an expected OPEC production increase of 500,000-1 million b/d may have already been factored into the markets to some degree. However, others say the increase is big enough to push down prices more.

Energy prices fell Friday as many traders took profits and unloaded positions ahead of the Sunday opening of the OPEC meeting.

The October contract for benchmark US light, sweet crudes fell by $1.76 to $33.63/bbl Friday on the New York Mercantile Exchange, while the November contract dropped $1.77 to $32.77/bbl. Both contracts continued to decline in after-hours electronic trading to $32.95/bbl and $32.17/bbl respectively.

The October contract for unleaded gasoline plunged 5.38� to 95.05�/gal on the NYMEX, while home heating oil for the same month fell 3.37� to 99.49�/gal.

The October contract for natural gas lost 11.8� to $4.88/Mcf.

In London, the October contract for North Sea Brent crude was down by $1.80 to $32.75/bbl Friday on the International Petroleum Exchange. However, the natural gas contract for the same month was flat at the equivalent of $3/Mcf.

The average price for OPEC's basket of seven crudes was down Friday by $1.47 to $32.37/bbl.

That basket price averaged $32.88/bbl last week, up from $31.02/bbl during the final week of August, officials said.

So far this year, OPEC's basket price has averaged $26.90/bbl, up from annual averages of $17.47/bbl in 1999 and $12.28/bbl in 1998.

In his opening address to the 111th OPEC conference on Sunday, Venezuelan Energy Minister Ali Rodriguez Araque said, "It is misleading to say that prices have trebled over the past 18 months; it is a far more accurate reflection of the situation to say that prices have risen to their present levels from a decade-long average of almost $18/bbl."

While prices for most consumer goods have risen significantly over that period, he said, oil prices have not kept pace with that trend.

Saudi Arabia again agreed to make the biggest increase of 259,200 b/d, or 32% of the total hike. Iran is to increase its production by 116,800 b/d, accounting for 15% of the total OPEC addition. Venezuela's production quota is being hiked by 92,800 b/d, 12% of the total OPEC increase.

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