Wednesday, March 08, 2006
Pumpers remorse?
In spite of what my hopes, and Venezuela's hopes, were OPEC has decided not to cut production. Essentially, Saudi Arabia, Nigeriam, Qatar, and, especially, Kuwait all insisted on maintaining current production levels. It didn't take long for prices to dip:
But the worse may be yet to come:
With inventories now hitting a seven year high it is almost certainly true that, as Rafael Ramirez has been saying, OPEC is overproducing by 1 million barrels per day. And if that is indeed the case OPEC countries are very likely to wind up with "pumpers remorse" as oil goes well below $60 in price. About the only good news is that the next OPEC ministers meeting is to be held in Caracas. Maybe that will give Venezuela's ideas more influence. Or maybe a sharp drop in prices will.
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NEW YORK - Oil prices fell to about $60 a barrel Wednesday after OPEC's president said the group will keep output intact and the U.S. Department of Energy reported a sharp rise in crude stocks last week.
But the worse may be yet to come:
Meanwhile Wednesday, the U.S. Department of Energy's Energy Information Administration said U.S. crude stocks rose by 6.8 million barrels in the week ending March 3 to 335.1 million barrels — the highest level since 1999.
The increase was attributed to a rise in imports and a fall in refinery use, due to seasonal maintenance, which created a back-up.
"It was an extremely large build in crude stocks — it was way above any expectations," said Tom Bentz, analyst at BNP Paribas Commodity Futures in New York.
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Kuwait's oil minister Sheik Ahmed Fahd Al Ahmed Al Sabah — who believes geopolitical tensions are adding $5 to $8 to each barrel — said he thinks prices will drop below $60 a barrel by the end of June, but are likely to rebound to the $60 range in the fourth quarter.
Markets were also keeping an eye on the situation in Nigeria, the world's 11th-largest oil producer, where recent attacks have reduced the country's production by 455,000 barrels a day, about 20 percent of its output.
It's unclear if the recent bearish sentiment in energy markets will last, but Bentz said he doubts crude-oil prices will break below $55. "Long-term, we're still in a big uptrend as far as I'm concerned," he said.
Market bears are arguing that inventories are high, demand isn't as strong as they predicted, and OPEC is still pumping at record levels. Market bulls, however, say that because of the United States' warm winter and high prices after Hurricane Katrina, demand has appeared low and its potential to surge has been underestimated, Flynn said.
Also, he added, just because OPEC didn't decide to cut production this week doesn't mean they won't do it later if prices tumble. "Oil ministers are going to have pumper's remorse if they see oil prices go below $60 a barrel," he said.
With inventories now hitting a seven year high it is almost certainly true that, as Rafael Ramirez has been saying, OPEC is overproducing by 1 million barrels per day. And if that is indeed the case OPEC countries are very likely to wind up with "pumpers remorse" as oil goes well below $60 in price. About the only good news is that the next OPEC ministers meeting is to be held in Caracas. Maybe that will give Venezuela's ideas more influence. Or maybe a sharp drop in prices will.
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