LOL, I feel so sorry for these SOB's. I swear I can actually hear them asking for sympothy. LOL
Crude Oil Falls to Two-Year Low as OPEC, Russia Start Price War
By Mark Shenk
New York, Nov. 15 (Bloomberg) -- Crude oil fell to a 2 1/2- year low, extending its decline this week to 23 percent, as OPEC's refusal to reduce production without cuts by Russia and other non- members signaled the start of a price war.
Excess production during an economic slowdown has put the oil market in ``crisis mode,'' said Saudi Oil Minister Ali al-Naimi. Russia, the second-biggest exporter after Saudi Arabia, has offered only a small output reduction, and Russian oil companies say they're not afraid to see prices collapse.
``OPEC has just put the future of the oil market in the hands of Russia,'' said James Fiedler, a senior oil broker with Man Financial Inc. in New York. ``Until Russia and OPEC come to an agreement, it looks like prices are going to be moving lower.''
Crude oil for December delivery fell as much as $2.59, or 13 percent, to $17.15 a barrel on the New York Mercantile Exchange, the lowest price since June 4, 1999, and biggest decline since Sept. 24. Oil was recently trading at $17.75 and is down 50 percent from a year ago.
New York futures prices have dropped 36 percent since the Sept. 11 terrorist attacks, as traders have been more concerned about weakening demand than any possible disruption in Middle East supplies during the U.S. military action in Afghanistan. Oil prices a year ago were rising toward a 10-year high of about $36 a barrel.
In London, Brent crude oil for January settlement fell as much $2.07, or 11 percent, to $17.10 a barrel on the International Petroleum Exchange, also the lowest price since June 1999.
``OPEC's proposals are not acceptable for Russia,'' said Mikhail Khodorkovsky, chief executive officer of Russia's second- biggest oil producer, AO Yukos Oil Co. ``Prices will collapse, but our Arab colleagues won't be able to keep low prices more than two years'' because their economies are too dependent on oil exports.
Testing Their Resolve
``We will see who has the resolve,'' al-Naimi told reporters in Vienna a day after the Organization of Petroleum Exporting Countries met to evaluate prices and supply. ``If the price really drops and stays down, you will see a lot of instability not only in the economy, but also in the stock of companies and their ability to invest in future production.''
``The major non-OPEC producers, Mexico, Russia and Norway, have diversified economies, unlike Saudi Arabia and most of the other OPEC members,'' said John Kilduff, senior vice president of energy risk management for Fimat USA Inc. in New York. ``They can live with oil at $18 or lower because they want to spur growth in other sectors of their economy.''
OPEC Secretary General Ali Rodriguez said he will visit Russia next month to try to persuade the country to cooperate with OPEC on supply reductions. OPEC is ready for falling oil prices if it doesn't gain the cooperation of other exporters, Rodriguez said.
``We have no floor'' for prices, Rodriguez told reporters. ``I believe we will suffer the consequences of our common problem if we don't have a common solution.''
Shares Fall
Oil company shares fell along with crude oil, as profit outlooks dimmed. Exxon Mobil Corp., the largest publicly traded oil company, fell $1.67, or 4.3 percent, to $37.03 in morning trading. Exxon is down 18 percent from a year ago. ChevronTexaco Corp. fell $3.51 to $83.11.
Norway, the second-largest exporter outside of OPEC, has also refused to participate in production cuts.
OPEC said it was willing to reduce its output quotas by 1.5 million barrels a day, or 6.5 percent, but only if outside producers pare another 500,000 barrels a day.
The output decline offered by OPEC would take its quotas to their lowest level since the Persian Gulf War in 1991. Russia, whose production is rising after dropping more than 40 percent during the 1990s, will not rush to cooperate, Deputy Prime Minister Viktor Khristenko said, according to Reuters.
``Russia still has time to take a concrete decision about reducing oil production,'' he told journalists in Azerbaijan, the agency reported. ``Russia is continuing consultations with OPEC members about the stabilization of the oil market.''
`Fair Oil Price'
While OPEC still hews to its price target of $22 to $28 a barrel for its benchmark index, Khodorkovsky said a ``fair oil price'' would be from $16 to $22 a barrel for Brent crude oil. Russia should work with the European Union and Norway to maintain such a price, he added.
Most of Russia's oil-producing capacity passed into private ownership during the 1990s, though the government still influences the industry by controlling the country's export pipelines.
Russia's oil companies offered to pare output by just 30,000 barrels a day when al-Naimi visited Moscow on Monday. That's a fraction of the 500,000 barrels they will add this year, according to International Energy Agency estimates.
The offer was ``extremely unreasonable,'' al-Naimi said.
Russia is reluctant to cut with oil companies racking up record profits and the government using their tax revenue to pay off pensions, salaries and foreign debt that were all in arrears when Vladimir Putin took over the Russian presidency from Boris Yeltsin last year, analysts said.
Slowing world economies are restraining growth in oil demand. The International Energy Agency said Monday that demand for oil will rise by 100,000 barrels a day this year, the smallest increase since 1984. Demand will rise by 600,000 barrels a day next year, two-thirds of the average annual gain in the 1990s. |
