NEW YORK: Crude oil prices may rise further
June 19, 2005
to a record next week as producers, including Opec, struggle to meet surging demand from refiners, a Bloomberg survey shows.
Thirty-five of 68 analysts and strategists surveyed by Bloomberg, or 51%, said oil prices will rise next week. Eighteen, or 26%, said they will fall, and 15 forecast little change.
The Organisation of Petroleum Exporting Countries, which agreed to boost its daily production quota from next month by 1.8% to 28mn barrels, is already pumping more than the new target, according to Bloomberg estimates.
The group, which supplies a third of the world’s oil, said in a report on Thursday it will need to pump 30.6mn bpd by the fourth quarter to meet surging fuel demand.
“The July 1 quota increase doesn’t mean that any new barrels will be made available,’’ said Marshall Steeves, an analyst with Refco Inc in New York. “Traders shrugged off Opec’s efforts to stabilise the market.’’
A week ago, 43% of survey respondents predicted an increase in oil prices and 39% said prices would fall. Nineteen of the last 30 surveys have correctly forecast the market’s direction.
“Opec has lost its grip on the market last year,’’ said Tom James, managing partner in London of energy and commodity consultant, Global Risk Partners. “They are pushing at the maximum, apart from Saudi Arabia.’’
Opec’s 10 members with quotas, all except Iraq, last month produced 28.1mn bpd, Bloomberg data show. These countries have the ability to pump an additional 1.6mn bpd, with 1mn of that amount in Saudi Arabia. Most of the additional oil is heavy, sour crude that is high in sulphur. Many refiners are unable to process sour oil and seek sweet grades that yield more diesel and gasoline.
“Opec is just trying to talk the market down and give the impression of more actual supplies,’’ said Craig Pennington, the head energy analyst a Schroders Plc in London. “They are more comfortable with prices below $50. They don’t want to go into the fourth quarter with oil at $55.’’
Fourth-quarter demand will average 85.91mn bpd, the Opec report showed, which means members of the group need to pump 30.6mn bpd in the quarter, or 100,000bpd more than forecast last month.
Global oil demand peaks during the quarter because of the Northern Hemisphere winter. Demand will rise 2.2% this year, the report showed.
“Opec with a lack of remaining production capacity has played its last chip and there’s no factor left to bring down prices,’’ said Shun Maruyama, an economist at UFJ Institute Ltd in Tokyo.
US crude-oil supplies fell 1.8mn barrels to 329mn last week, an Energy Department (DoE) report on Wednesday showed. A decline of 1mn barrels was expected, according to the median of forecasts by 16 analysts surveyed.
It was the second straight weekly decline and third in the past four weeks. Gasoline supplies fell as refiners maximised output of distillate fuel, a category that includes diesel and heating oil.
“Concerns about a lack of refining capacity continue to support the crude market,’’ said Makoto Takeda, an energy analyst at Iriya Bansei Securities in Tokyo. “Higher production of distillates has caused lower gasoline’’ output.
US refineries operated at 96.7% of their capacity in the week ended June 10, the highest since July. Production of distillate fuels rose 4.2%, to a record 4.4mn barrels a day. Gasoline output slipped 71,000 barrels to 9mn barrels.
Distillate fuel supplies rose 3.4mn barrels to 110.2mn barrels last week, the report showed. Supplies were 1.7% below the five-year average last week, according to the department.
Prices may also gain on concerns the Atlantic Ocean hurricane season, which began on June 1 and lasts through November, will cut production in the Gulf of Mexico and disrupt tanker unloading.
This year’s Atlantic Ocean hurricane season will produce 36% more hurricanes than average, a team of scientists at Colorado State University forecast last month.
“There is a strong concern about availability of diesel, heating oil and jet fuel in the fourth quarter combined with expectations that aggressive weather might undermine production,’’ said Gal Luft, executive director of the Washington-based Institute for the Analysis of Global Security. “This could push prices to a level comparable to April’s record.’’
Some analysts said the rise in refining rates may lead to a decline in prices if distillate stockpiles increase.
“The upward movement after the Opec decision and the DoE numbers was a little overdone,’’ said Tobias Merath, a commodities strategist with Credit Suisse in Zurich. “The increased utilisation rate should improve product availability over the next days.’’ – Bloomberg
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