Crude Oil Gains as OPEC Ministers Prepare Decision on Output
By Mark Shenk
Bloomberg
New York, Dec. 26 (Bloomberg) -- Crude oil had its biggest gain in more than a year on signs that OPEC will reduce production by 6.4 percent because of slowing world demand.
OPEC ministers will meet in Cairo on Friday to decide whether to cut daily output quotas by 1.5 million barrels. Such a reduction has been contingent upon cuts by non-OPEC exporters, who have pledged reductions of about 460,000 barrels a day. Saudi Oil Minister Ali al-Naimi said in Cairo that OPEC reductions were a 100 percent certainty, Dow Jones Newswires reported.
``Even though non-OPEC producers came up short of the 500,000 barrels that OPEC wanted from them, their efforts brought them close enough, so we don't expect the cartel to quibble,'' said Michael Fitzpatrick, a broker at Fimat USA Inc. in New York. ``By the time we get to work on Friday, there will most likely be an agreement to cut 2 million barrels.''
Crude oil for February delivery rose $1.65, or 8.4 percent, to $21.27 a barrel on the New York Mercantile Exchange, the biggest one-day rise since Oct. 12, 2000, and the highest closing price since Nov. 13. Prices have dropped 24 percent since the terrorist attacks on Sept. 11. The International Petroleum Exchange in London is closed for Boxing Day.
Price gains also came as cold weather in the U.S. spurred a rally in heating oil. Heating oil for January delivery rose 4.62 cents, or 8.4 percent, to 59.46 cents a gallon on the Nymex, the highest closing price since Nov. 13 and biggest gain since April 19, 2000.
The Organization of Petroleum Exporting Countries said at a November meeting that it would reduce daily production quotas by 1.5 million barrels provided non-OPEC countries contributed reductions of their own. Exporters including Russia and Norway have pledged cuts of 462,500 barrels.
Weakening Demand
The International Energy Agency predicts a rise in world demand next year of 600,000 barrels a day, two-thirds the average annual gain during the 1990s, as the largest oil consumers, including the U.S. and Japan, battle recession.
``Given the present market situation, I think OPEC should be happy with the current price level,'' said Lim Meng Tong, a trader with ChevronTexaco Global Trading in Singapore.
The producer group has reduced its targets by 3.5 million barrels a day, or 13 percent, this year, though the 10 members with quotas, all except Iraq, exceeded their goals by 350,000 barrels a day in November, according to Bloomberg estimates.
Cutting 1.5 million barrels would reduce OPEC quotas to below 1999 levels, when the group was reducing output to help lift prices from close to $10 a barrel. OPEC's 11 members pumped about 26.4 million barrels a day last month, according to Bloomberg estimates.
Speculator Positions
Crude oil prices also rose as speculators canceled bets on lower prices.
Speculators sold more crude oil futures contracts in New York than they bought in the week ended Dec. 18, expanding a net short position to its highest level since the contracts began trading in 1983, a report Friday from the Commodity Futures Trading Commission showed.
``All of the short positions should be positive for the market in the short term,'' said Marianne Kah, chief economist at Conoco Inc., the fifth-largest U.S. oil company. ``As soon as an OPEC agreement is made, they will want to get rid of them. Today's move could be due to many of them getting nervous.''
Prospects for fatter profits sent oil company shares higher. Exxon Mobil Corp., the biggest publicly traded oil company, rose 60 cents to $39.60. ChevronTexaco Corp. gained 65 to $89.25.
Iraqi Claim
Iraq claimed that it hit a U.S. or British aircraft patrolling the no-fly zone in southern Iraq, according to nation's INA news agency. U.S. Navy Lt. Commander Jeff Davis denied the Iraqi report. An attack on western warplanes would increase the likelihood that Iraq would be the next target in President George W. Bush's war on terrorism, analysts said.
U.S. and U.K. jets patrol the so-called no-fly zones created in northern and southern Iraq after the 1991 Persian Gulf War. The planes regularly come under Iraqi fire. Iraq normally accounts for about 3 percent of world oil supply.
Colder Weather
Temperatures will be below normal from Texas to Maine during the five-day period beginning Monday, according to the National Weather Service. That will lead homeowners to crank up furnaces that were mostly idle during the second-warmest November in more than a century of government record keeping.
``A new round of cold air will enter the Great Plains from Canada during the second week of January and then move towards the East Coast,'' said Gerald Mohler, a meteorologist at AccuWeather Inc. in State College, Pennsylvania. ``According to our model, temperatures could be 15 to 20 degrees below normal.''
About 35 percent of each barrel of oil goes toward distillate fuels, including heating oil, diesel and jet fuel.
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Rydex Energy TA numbers confirm Bullish breakout in XOI - the highest close since November 13th.
Best Regards, J.T. |
