Oil Plunges Below $58 as Saudis Say They Will Boost Shipments
By Mark Shenk
Feb. 12 (Bloomberg) -- Crude oil plunged below $58 a barrel in New York after Saudi Arabia told Asian refiners to expect more shipments next month and the nation's oil minister said OPEC has no need to further rein in production.
Saudi Arabia will ship 7 percent less-than-contracted volumes to the refiners in March compared with a cut of as much as 14 percent this month, said officials who received notices and asked not to be identified because of confidentiality agreements. Saudi Arabia's oil minister, Ali al-Naimi, said OPEC may not have to make additional output cuts, the Wall Street Journal reported.
``Reports that Saudi Arabia is supplying more oil to Asia and indications OPEC won't make further cuts started this move to the downside,'' said Michael Fitzpatrick, vice president for energy risk management at Fimat USA in New York. ``The lower it goes the more selling is triggered. Big moves are becoming the norm.''
Crude oil for March delivery fell $2.16, or 3.6 percent, to $57.73 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Natural gas for March delivery tumbled 59.8 cents, or 7.6 percent, to $7.229 per million British thermal units, the biggest decline since Dec. 26, on forecasts for milder weather in the eastern U.S. next week after snowstorms in the next few days.
Crude oil futures touched $60.80 on Feb. 9, the highest intraday price since Jan. 3. Prices are 6.8 percent lower than a year ago. Daily price swings in crude oil futures are widening. Futures fell or rose more than 1.5 percent on 25 trading days in the past two months compared with 14 days in the same period a year earlier, according to data compiled by Bloomberg.
``The failure to sustain the rally above $60 on Friday was not a good technical sign,'' said Tom Bentz, an oil broker with BNP Paribas Inc. in New York. ``I think we got a little ahead of ourselves and will be in corrective mode for a couple days.''
Saudi Reductions
Last month, Saudi Aramco informed customers in South Korea that supplies would be cut by between 11 percent and 14 percent in February and refiners in Japan would receive between 10 percent and 12 percent below contracted volumes. Saudi Aramco is the world's largest state oil company.
The Organization of Petroleum Exporting Countries' 12 members are scheduled to meet in Vienna on March 15 to decide whether to further trim oil output. OPEC already agreed to remove 1.7 million barrels a day from the market in two phases to stop prices from declining. The second reduction began this month.
Inventory Rebuilding
``The Saudi announcement precludes any further cutbacks from OPEC,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. ``It's not unusual for supplies to increase in the second quarter. The increased Saudi production suggests that there may be some inventory rebuilding in the second quarter.''
OPEC expects markets will have a surplus of 300,000 barrels a day during the second quarter as winter demand eases, Hasan Qabazard, the group's head of research told reporters in London today.
Brent crude oil for March settlement declined $2.51, or 4.3 percent, to $56.50 a barrel on the London-based ICE Futures exchange.
Prices also fell on speculation that U.S. heating-oil inventories are sufficient to meet late winter demand. Home- heating demand in the Northeast, the region responsible for 80 percent of U.S. heating-oil use, will be 33 percent above normal for the coming week, said Weather Derivatives, a forecaster in Belton, Missouri.
`Over Enthusiastic'
``I think we were a little over enthusiastic about the weather's impact on the oil market last week,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Winter will soon be over as far as refiners are concerned. It won't be that long before we'll see warmer temperatures.''
Mild weather in December and early January helped push New York oil futures to $49.90 a barrel on Jan. 18, the lowest since May 25, 2005. The arrival of colder weather has helped drive prices higher this month.
``Prices were unable to stay above $60 and only a few weeks ago we tested $50,'' said Eugene X. Hodge, a managing director at John Hancock Financial Services Inc. in Boston, who manages a $4.3 billion oil and gas company bond portfolio. ``It looks like we are happy in a $50 to $60 range as long as there isn't a major political development.''
The European Union began enforcing United Nations sanctions on Iran's nuclear program while promising to consider a new offer by the Iranian government for a negotiated settlement. Oil in New York jumped 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 UN nuclear inspectors might disrupt the nation's exports.
Heating oil for March delivery plunged 8.21 cents, or 4.8 percent, to $1.643 a gallon in New York. It was the biggest one- day decline this year.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net .
Last Updated: February 12, 2007 14:42 EST |
