Oil Falls More Than $1 on Signs U.S. Fuel Supplies Are Ample
By Mark Shenk
Jan. 29 (Bloomberg) -- Crude oil fell more than $1 a barrel on speculation that U.S. fuel inventories are adequate to meet increased heating demand during the next two weeks.
Crude oil and fuel stockpiles in the week ended Jan. 19 were higher than average, the Energy Department said. The eastern two- thirds of the U.S. will experience below-normal temperatures from Feb. 3 to Feb. 11, the National Weather Service reported. The Organization of Petroleum Exporting Countries pledged to cut daily oil output by 500,000 barrels starting Feb. 1.
``Given ample stockpiles, the cold weather isn't enough to give us a sustained rally in prices,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``We're now looking to OPEC for direction. We want to get a sign of how good adherence to the Feb. 1 cuts is before there's another big move in prices.''
Crude oil for March delivery fell $1.41, or 2.5 percent, to $54.01 a barrel on the New York Mercantile Exchange, the lowest close since Jan. 22. Prices are 20 percent lower than a year ago.
``There is no reason to be long above $55 or short below $50,'' said Michael Fitzpatrick, vice president for energy risk management at Fimat USA in New York. ``We should move sideways until the weather breaks, and when it does it will be clear what direction we will break out in.''
Longs are bets that prices will rise and shorts are bets that prices will decline.
Saudi Statements
``The present level of oil prices is adequate in our view to meet the requirements of the oil-producing countries and the consuming countries as well,'' Saudi Arabia's Prince Turki al- Faisal said in Washington today.
Prices fell when Saudi Arabian Oil Minister Ali al-Naimi on Jan. 16 rejected calls from other OPEC members for an emergency meeting to discuss an additional reduction. Saudi Arabia is the biggest and most influential member of OPEC.
``The Saudis are making it clear that they are happy with prices where they are, which is bearish for oil, said Jason Schenker, an economist at Wachovia Corp. in Charlotte, North Carolina. ``We are also expecting another net gain in inventories.''
An Energy Department report on Jan. 31 is expected to show that U.S. crude oil and gasoline stockpiles rose last week, according to analysts in a Bloomberg News survey. Analysts said the report will show inventories of distillate fuel, a category that includes heating oil diesel, fell for the first time in seven weeks.
Winter's Grip
``Right now in New York we are near the height of winter,'' said Eric Wilhelm, a meteorologist at AccuWeather Inc. in State College, Pennsylvania. ``The lowest average high is 37 degrees on Jan. 21 and the lowest average low is 26 degrees right now. During the next couple weeks you will see temperatures begin to rise throughout the Northeast.''
Much of North America was warmer than normal in December and early January because of El Nino. El Nino refers to the warming of the Pacific Ocean surface off the western coast of South America. The phenomenon affects the jet stream, alters storm tracks and creates unusual weather patterns.
``December was incredibly warm in the Northeast,'' Wilhelm said. ``Temperatures averaged for the month were between 5 and 10 degrees above normal, so people saved a lot of money on heating bills.''
Heating oil for February delivery fell 4.25 cents, or 2.7 percent, to close at $1.5489 a gallon in New York.
OPEC Production
OPEC, which pumps about 40 percent of the world's oil, agreed to lower production by 1.2 million barrels a day starting Nov. 1. Member states agreed to the additional cut on Feb. 1, at a Dec. 14 meeting.
Saudi Arabia's King Abdullah warned Iran against interfering in the kingdom's affairs, the Al-Seyassah newspaper reported. Abdullah said he told visiting Iranian envoy Ali Larijani that Saudi Arabia will not interfere in Iranian affairs and will not support any action against it, and expects the same from Iran, the newspaper reported Jan. 27.
Crude oil futures in New York surged to a record $78.40 a barrel on July 14 partly because of violence in the Middle East and concern that Iran's defiance of United Nations nuclear inspectors might disrupt the nation's exports. Iran is OPEC's second-biggest oil producer.
Middle East Risk
``The big thing that we think will move markets is the Middle East political risk premium,'' said David Kirsch, manager of the oil markets group at PFC Energy, a Washington, D.C., consultant. ``It looks like it's going to come roaring back pretty strong with the moves on both the Iranian and the U.S. sides over the last couple of weeks.''
Iran is under UN sanctions for its refusal to halt uranium enrichment as part of its nuclear program, which the U.S. says is a cover for building atomic weapons. The Islamic republic says it intends to use the enriched material as fuel to generate electricity.
Brent crude oil for March settlement fell $1.61, or 2.9 percent, to close at $53.68 a barrel on the London-based ICE Futures exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net .
Last Updated: January 29, 2007 15:18 EST |
