Opec move sparks slide in oil price
Published: September 11 2006 20:44 | Last updated: September 11
2006 20:44
Oil prices fell on Monday to their lowest level since the end of
March after the Organisation of the Petroleum Exporting Countries
agreed to keep production quotas unchanged.
But members of the cartel signalled they might reduce output later
this year to limit any further fall in world oil prices.
The European benchmark, Brent, dropped $1.09 to $64.24 a barrel in
late afternoon London trade, and near its lowest level in more than
five months. It is now more than 18 per cent down on its record
high of $78.65, touched just over a month ago.
Falling crude prices sparked sharp declines in other commodity
markets. Gold traded below the key $600-an-ounce threshold for the
first time since late June, while copper fell 4.5 per cent to
$7,460.50 a tonne.
Edward Morse, chief energy economist at Lehman Brothers, said oil
prices were unlikely to carry on falling. We have had the perfect
lull, but it is not a turning point when prices will continue to
decline, he said.
Mr Morse said the fall reflected the easing of tension between the
west and Iran over its nuclear ambitions, the end of the
Israel-Lebanon conflict, lack of hurricanes in the Gulf of Mexico
region and an end to the US summer driving season.
Ali Naimi, Saudi Arabias energy minister, shrugged off the fall in
prices, calling it a blip.
Opec ministers agreed to keep the cartels official production at
28m barrels a day, even though the 10 members that abide by quotas
are producing 500,000 b/d less. With the cartel producing below
official limits, analysts said Opec may cut at its next meeting in
Nigeria in December.
The process is starting now. Its been several years since theyve
had to cut back, said Carl Calabro, analyst at PFC energy, the
Washington based consulting firm. Mr Calabro said there was already
a surplus of fuel oil in the market, in particular in Singapore,
but also in the US, where inventories are 25 per cent higher than
normal.
Mr Morse said the focus on inventories was overdone, as global
inventories in absolute terms will have to continue to grow in
order to maintain the comfort level of between 50 and 55 days of
forward demand cover.
He said oil demand had risen by about 10m b/d in the past six
years, which translates to another 500m barrels of oil needed in
storage.
Oil traders expect prices to rise by the end of the year.
The US benchmark oil price, the West Texas Intermediate, is quoted
at more than $67 a barrel for December, compared with the current
spot price of $65.50.
Oil traders said concern about the fall in oil prices may be
overdone, given that US benchmark oil prices are 7 per cent lower
than the record peak of $70.85 reached in August last year in the
wake of Hurricane Katrina.
