Prices tumble on warmer weather and US economic news
Oil prices fell by close to $2 a barrel in the last week of October, on warmer weather and slower economic growth in the US. OPEC members queued up to pledge their intention to follow through on the 1.2 million barrel-a-day (b/d) cut agreed on 19 October. But the market remains unconvinced. Spot Brent was trading at $55.99 a barrel on 1 November, compared with $57.75 a barrel a week earlier.
The weather in the US turned warmer, easing fears of imminent heating oil shortages. Meanwhile, the latest quarterly gross domestic product (GDP) data was released. Growth slowed during the third quarter to 1.6 per cent from 2.6 per cent, implying a likely weakening of energy demand going forward. Countering the bearish sentiment were the latest US inventory figures: crude stocks fell by 3.3 million barrels in the week to 20 October, while distillate supplies were down by 1.4 million barrels to 144 million barrels. 'As in the previous week, the latest US inventory data shows inventories tumbling fast relative to their five-year average,' says Paul Horsnell, analyst at Barclays Capital. 'The demand numbers are very strong, with implied gasoline demand passing above 9.5 million b/d.'
High oil prices were not among the factors put forward by the US Commerce Department for weaker GDP growth. However, President Bush in late October publicly criticised the OPEC output reduction.
'I would hope that the OPEC nations understand that high prices of oil could wreck economies, and if they wreck economies, it means the purchasers will be fewer,' he said.
Head of the International Energy Agency Claude Mandil also warned against the move: 'It's really the worst time to cut production - we're moving into the winter heating oil season and we're still faced with supply-side risks,' he said. 'Stocks are healthy, but they need to be in this season because we're coming up to the heating oil season and refineries go into maintenance ahead of that. One year ago, OPEC ministers were saying the prices were too high and they were at the level they are now.'
However, OPEC continued to signal its determination to halt the slump in prices. Most producers have now followed the early moves of Saudi Arabia and the UAE in indicating to customers that volumes will be reduced from 1 November.
Indonesia was the exception, stating that it would not adhere to its lower ceiling on the grou nds that production is already low and falling. The dissent is irrelevant in overall global supply terms but sent a signal of some disunity within OPEC, which exacerbated the doubt among traders that the cuts would be implemented in full.
The more hawkish OPEC members are sending the opposite message, raising the possibility of further cuts when members next meet in December.
Venezuelan Oil Minister Rafael Ramirez said on 26 October that if the price failed to stabilise at $55 a barrel or more, 300,000 b/d of collective output should be taken off. His comments were echoed by Algerian Energy & Mines Minister Chakib Khelil.
'If the reduction already decided is not enough, in December we shall take another decision,' he said on 30 October, adding that he expected prices to stabilise at or above $60 a barrel in the coming weeks.
Oil prices fell by close to $2 a barrel in the last week of October, on warmer weather and slower economic growth in the US. OPEC members queued up to pledge their intention to follow through on the 1.2 million barrel-a-day (b/d) cut agreed on 19 October. But the market remains unconvinced. Spot Brent was trading at $55.99 a barrel on 1 November, compared with $57.75 a barrel a week earlier.
The weather in the US turned warmer, easing fears of imminent heating oil shortages. Meanwhile, the latest quarterly gross domestic product (GDP) data was released. Growth slowed during the third quarter to 1.6 per cent from 2.6 per cent, implying a likely weakening of energy demand going forward. Countering the bearish sentiment were the latest US inventory figures: crude stocks fell by 3.3 million barrels in the week to 20 October, while distillate supplies were down by 1.4 million barrels to 144 million barrels. 'As in the previous week, the latest US inventory data shows inventories tumbling fast relative to their five-year average,' says Paul Horsnell, analyst at Barclays Capital. 'The demand numbers are very strong, with implied gasoline demand passing above 9.5 million b/d.' High oil prices were not among the factors put forward by the US Commerce Department for weaker GDP growth. However, President Bush in late October publicly criticised the OPEC output reduction. 'I would hope that the OPEC nations understand that high prices of oil could wreck economies, and if they wreck economies, it means the purchasers will be fewer,' he said. Head of the International Energy Agency Claude Mandil also warned against the move: 'It's really the worst time to cut production - we're moving into the winter heating oil season and we're still faced with supply-side risks,' he said. 'Stocks are healthy, but they need to be in this season because we're coming up to the heating oil season and refineries go into maintenance ahead of that. One year ago, OPEC ministers were saying the prices were too high and they were at the level they are now.' However, OPEC continued to signal its determination to halt the slump in prices. Most producers have now followed the early moves of Saudi Arabia and the UAE in indicating to customers that volumes will be reduced from 1 November. Indonesia was the exception, stating that it would not adhere to its lower ceiling on the grou nds that production is already low and falling. The dissent is irrelevant in overall global supply terms but sent a signal of some disunity within OPEC, which exacerbated the doubt among traders that the cuts would be implemented in full. The more hawkish OPEC members are sending the opposite message, raising the possibility of further cuts when members next meet in December. Venezuelan Oil Minister Rafael Ramirez said on 26 October that if the price failed to stabilise at $55 a barrel or more, 300,000 b/d of collective output should be taken off. His comments were echoed by Algerian Energy & Mines Minister Chakib Khelil. 'If the reduction already decided is not enough, in December we shall take another decision,' he said on 30 October, adding that he expected prices to stabilise at or above $60 a barrel in the coming weeks.This content is only available to full MEED package subscribers (MEED magazine and MEED.com).
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