FOCUS-Oil price takes heavy hit as funds exit
October 8, 1999 11:20am
Source: Reuters
LONDON, Oct 8 (Reuters) - Oil's sudden downturn accelerated
on Friday as speculators rushed to sell amid doubts about OPEC's
resolve to maintain strict adherence to supply limits.
In a fifth straight day of losses, benchmark Brent crude for
November traded $1.64 a barrel lower to $20.44 by midafternoon in
London, a seven percent loss. Oil has slumped $3.50 a barrel, 15
percent, since hitting a 33-month high last Thursday.
Losses quickened this week following a Reuters survey
indicating that oil cartel OPEC's compliance with output curbs,
which have more than doubled prices in eight months, slackened in
September.
The survey sparked a surge of profit-taking from the
speculative investment funds which fuelled oil's rise from less
than $10 in February.
``The funds are baling out fast and I don't see an immediate
end yet,' said Nauman Barakat at brokers ABN Amro in New York.
``If OPEC has shown a small amount of leakage then the
speculators are going to worry that it's going to get even worse
in October and November,' added a London trader.
Some argue that the sell-off was inevitable and will have
taken some of the speculative steam out of the market, taking
prices to a more realistic level.
WINTER MIGHT STILL SPIKE PRICES
A bout of cold weather in the looming northern hemisphere
winter could still spike oil back above $25, some still think.
``Today the oil market bulls are treading on egg shells but
they'll live to fight another day,' said Peter Gignoux, head of
the energy desk at Salomon Smith Barney in London.
``It's natural long liquidation, not a big change in
fundamentals. There have been some massive long positions sitting
in there for months and if they are selling out at these numbers
then they're making pots of money,' added a London dealer.
The sharp price reversal flies in the face of OPEC's
commitment at its September conference to keep to current output
limits until at least March next year.
Compared to last year's average of just $13.30 a barrel OPEC
will be happy that Brent is still above $20. Analysts said the
market shake-out would reduce pressure on the cartel to ease
supply limits before the planned deadline next March.
Traders have become edgy since the Reuters survey of OPEC and
industry officials and consultants published on Wednesday showed
the export cartel raised wellhead output in September by 180,000
barrels per day (bpd).
The survey showed adherence by OPEC members taking part in
supply restrictions, excluding Iraq, fell to 81 percent in
September from 84 percent in August.
The market has also been unsettled at the prospect of a
meeting next month between the oil ministers of Saudi Arabia,
Venezuela and Mexico -- the architects of the deal to cut back
production until March next year.
The Mexican minister, Luis Tellez, said on Thursday that the
meeting would discuss post-March production policy, but added
there was a ``clear intent' to keep oil prices at recent levels.
Traders will be keeping a close eye on an industry report out
in the United States after the close of trade on Friday to see
how much speculative length the recent sell-off has taken from
the market in U.S oil futures.
Prices in dollars per barrel:
Oct 8 Oct 7
(1430 GMT) (close)
IPE Nov Brent 20.44 22.08
NYMEX Nov light crude 21.04 22.45 |
