Oil prices fall below $58, a low for 2006
Thursday, October 12, 2006
WASHINGTON -- Oil prices fell to their lowest level this year on Wednesday as doubts grew that there is a consensus within OPEC for an immediate output cut.
Since July, the cost of crude oil has plunged by more than $20 amid rising global inventories, concerns about slowing economic growth and a milder-than-anticipated hurricane season.
Against this backdrop, the president of the Organization of Petroleum Exporting Countries, Nigerian oil minister Edmund Daukoru, says there is a need -- and an agreement -- to cut production by 1 million barrels a day starting next month.
But Saudi Arabia, the country whose participation is necessary to make any significant output reduction, has not publicly confirmed this.
"The market just doesn't believe" a supply cut is imminent, said Societe Generale's director of commodity strategy Michael Guido.
Indeed, OPEC members appear to be divided over what is an appropriate price level for the cartel to try and defend by reducing its output, analysts said.
Price hawks within OPEC, such as Venezuela and Nigeria, have made it very clear over the past week -- through a barrage of public comments -- that they are quite satisfied with world oil prices hovering around $60 a barrel.
Saudi Arabia, on the other hand, has made it known -- by remaining mostly silent -- that it is not interested in attempting to prop up prices just yet.
A 'reasonable level'
The country's ambassador to the United States, Turki al-Faisal, said last week that Saudi Arabia seeks a "reasonable level" for oil prices that will not hurt global economic growth.
"Prince Turki's statements are the Saudi position," Nail al-Jubeir, a spokesman for the ambassador said Wednesday. Asked whether OPEC will implement a production cut at its next meeting, al-Jubeir said: "We always believe actions speak louder than words."
Analysts said the discrepancy among OPEC members about what constitutes a fair price for oil also relates to each country's dependence on oil revenue to finance their domestic budgets.
"One of the problems with high oil prices is that they have made some countries believe they're entitled to that level," said Lawrence Goldstein, president of the Petroleum Industry Research Foundation, a New York-based industry-financed think tank.
"By the way, $60 oil is still not cheap oil," Goldstein said.
Light sweet crude for November delivery fell by 93 cents to settle at $57.59 a barrel on the New York Mercantile Exchange -- the lowest settlement since Dec. 19.
In London, November Brent crude declined by 69 cents to settle at $58.65 barrel on the ICE Futures exchange.
The last time OPEC trimmed its output -- by 1 million barrels a day -- was December 2004 when oil traded slightly above $40 a barrel. That caused an immediate spike in prices.
On Wednesday, OPEC president Edmund Daukoru told reporters in Abuja, Nigeria, that a new cut has been agreed to and that members were "nearing consensus" on how to apportion the cuts.
Kuwait's energy minister had said Monday that OPEC was considering trimming its daily output by anywhere from 700,000 barrels to 1 million barrels.
OPEC's output quota now is 28 million barrels a day. Including Iraq, which is not bound by the quota system, OPEC's daily production is slightly below 30 million barrels.
A report from the International Energy Agency forecast the market for OPEC crude for the first quarter of next year at 29.5 million barrels a day, suggesting that supply and demand are adequately balanced.
Phil Flynn, an analyst at Alaron Trading Corp., said "a real cut in production of 1 million barrels of oil a day would be extremely bullish."
Other analysts have said prices could fall to $50 a barrel if economic growth slows and if the Northern Hemisphere winter is not particularly cold.
Nymex oil futures, which have been traded since 1983, peaked at $78.40 in mid-July. Adjusted for inflation, the price of oil would have to surpass $90 a barrel to match the all-time high established a quarter century ago in the aftermath of the Iranian revolution.
In other Nymex trading, heating oil futures fell less than a penny to settle at $1.672 a gallon, while gasoline prices fell 1.65 cent to settle at $1.4503 a gallon.
Natural gas futures fell 31.6 cents to settle at $6.15 per 1,000 cubic feet.