JUNE 11, 2001
Oil's Well That Ends Well
Rising inventories could bring oil prices down
By Cheryl Strauss Einhorn
interactive.wsj.com (subscription req)
Members of the organization of Petroleum Exporting Countries voted to
leave oil production quotas unchanged at their most recent meeting in Vienna
last week. Yet despite the cartel's decision, which comes, seasonally, at
peak-demand time in the U.S., crude prices fell. Too, they seemed to ignore
the growing crisis in Iraq, where production of 4% of the world's oil has
temporarily stopped amid a dispute with the United Nations over the terms of
And oil supplies have been rising. Inventories have been increasing steadily for
the past eight weeks, according to data from the American Petroleum
Institute, an industry group. For the most recent week, they grew another 3.4
million barrels. Stocks are now 7% above a year ago and within 1% of where
they were in 1999, when prices were $18 per barrel.
Still, while traditionally there has been an inverse relationship between the
level of crude inventories and oil prices, "crude has been flat as a pancake at
$28 per barrel," says Fred Leuffer, Bear Stearns' oil analyst. "That is very
odd, and it is the first time I can remember seeing such a big build in stocks
and seeing no price reaction."
Corn and soybean prices got a boost last week from a government report
showing that U.S. crops were hurt by excessive rainfall and unusually cool
temperatures in the U.S. Midwest. Only 64% of the corn crop was rated in
good-to-excellent condition, down from 70% one week earlier. Soybeans fell
to 56%, down from 61%. Those are unusually large declines and may finally
pull these markets out of their prolonged bear trends.
Iraq's oil sales. |
