supply and demand
quote.bloomberg.com
Crude Oil Plunges After Record Production Spurs Glut Concern
By Mark Shenk
New York, April 10 (Bloomberg) -- Crude oil had its biggest decline since the Iraq war started, after the International Energy Agency said global oil production last month rose to a record 80.3 million barrels a day, spurring concern that a glut is forming.
Saudi Arabia and Russia, the top exporters, increased output last month as Iraqi production was halted. Concern that such countries may be reluctant to cut back has helped send oil down 12 percent this month. Chakib Khelil, Algeria's oil minister, said there are 2 million barrels a day of excess supply.
``OPEC is worried, and with good reason,'' said Jim Steel, director of commodity research at Refco Inc. in New York. ``Production is up and it will be difficult to get the different nations to reduce output by enough to support prices.''
Crude oil for May delivery fell $1.39, or 4.8 percent, to $27.46 a barrel on the New York Mercantile Exchange. It was the biggest one-day decline since March 19 and lowest closing price since March 21. Oil has plunged 31 percent from a 12-year high of $39.99 reached on Feb. 27.
Declines today accelerated as automatic sell orders, known as stops, were triggered when prices fell below last week's low of $27.66 a barrel, said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. Futures will find some support at mid-March lows, he said.
``We've hit a number of sell stops and it looks like the decline will continue,'' Silliere said during the trading session. ``We've got a long way to go, at least to $26.30. Prices might not make it today, but they are sure to by tomorrow.''
In London, the May Brent crude-oil futures contract fell 78 cents, or 3.1 percent, to $24.47 a barrel on the International Petroleum Exchange, the lowest closing price since March 21.
Falling Demand
The Paris-based energy agency, which represents the U.S. and 25 other industrialized nations, estimated second-quarter consumption at 76.4 million barrels a day, 2 million less than the first quarter. The agency was set up in 1974 after the Arab oil embargo of the previous year.
Demand will be limited by a sluggish economy in the U.S., the biggest oil consumer. U.S. economic growth will slow to 2.2 percent this year from 2.4 percent in 2002, restricting expansion throughout the world, according to an International Monetary Fund report released this week.
The fund's managing director, Horst Koehler, said today that the likelihood that the war in Iraq will end soon is ``good news'' for the world economy, mainly because it eases concern about rising oil prices.
Lost Income
The energy agency's report ``shows that there is an awful lot of oil out there, said Kyle Cooper, a Citigroup Inc. analyst in Houston. ``Even if the Saudis cut production by 1 million barrels, supplies will grow. Nigerian production is increasing and there could still be further increases from Venezuela. OPEC members hate cutting output because it means a decline in income.''
Russia is not a member of the Organization of Petroleum Exporting Countries.
Oil companies in Nigeria are restoring production to normal levels after cutting the country's output by about one-third last month because of violence in oil regions. Royal Dutch/Shell Group, Nigeria's largest foreign oil producer, said it restored 100,000 barrels a day of output. A total of 202,000 barrels of daily output remains closed in the region.
Venezuelan production is returning to normal levels for the first time since a strike in December disrupted output, the state oil company Petroleos de Venezuela SA said this week.
OPEC Meeting
OPEC may meet later this month to consider a production cut.
``We have already witnessed a drop in oil prices which preoccupies everyone, and that's why the OPEC president is calling for a meeting,'' Khelil said.
Iraq may be able to pump as much as 3 million barrels of oil a day by the end of this year, generating annual sales of $20 billion to help it rebuild, U.S. Vice President Dick Cheney said yesterday. The country averaged 2.48 million barrels a day in February, according to Bloomberg estimates.
The U.S. and U.K. are asking Iraqi workers in the country's southern oil fields to return to their jobs, as they try to make the system safe before resuming exports.
``We're very keen for these people to return to work, as it's their oil, after all,'' Steve Wright, a spokesman for the U.S. Army Corps of Engineers said in an interview. Some Iraqis might return in ``a few days,'' Wright said.
Iraq may not be able to restart sales for another three months while the engineers assesses damage.
U.S.-led forces are in Baghdad and tightening control of Iraq, bringing closer a return of the nation's oil sales. Coalition forces control Basra, the second-largest city, allied military officials have said. The city of Kirkuk, in the northern oil region, fell today, the British Broadcasting Corp. said.
``It looks likely that the northern oil fields will soon be secure,'' said Tom Bentz, an oil broker at BNP Paribas Commodity Futures Inc. in New York. ``It's one more threat that is rapidly disappearing.''
Last Updated: April 10, 2003 15:46 EDT |
