Gulf Times - 4/6/2006
Crude oil may decline on signs that rising inventories and higher refinery output will meet gasoline demand during the US summer driving season.
Fourteen of 32 analysts, traders and brokers, or 44%, said prices will drop next week. Ten projected little change and eight said that oil will rise. Last week 39% of respondents predicted that futures would fall.
Gasoline supplies have climbed 4.3% since April 21 as refinery output jumped to the highest since August, before Hurricane Katrina hit the Gulf of Mexico coast, the Energy Department said.
The Organisation of Petroleum Exporting Countries decided on Thursday to keep production quotas at a record high to help meet demand.
Higher gasoline supplies “should lead to a stress-free driving season,’’ said Tim Evans, an energy analyst at Citigroup Global Markets Inc in New York. “The Opec rollover leaves a supply-demand surplus in place, so the world should continue to see a build in crude oil stockpiles through the third quarter.’’
Crude oil for July delivery rose 96¢, or 1.3%, to $72.33 a barrel this week on the New York Mercantile Exchange. Futures touched $75.35 on April 21 and April 24, the highest since trading began in 1983.
US gasoline use peaks between Memorial Day and Labor Day in early September.
Opec decided at a meeting in Caracas to keep its production quotas at 28mn bpd. Opec officials said that prices above $70 a barrel and concern about supply disruptions in Iran and Nigeria are prompting Opec to keep pumping at near-record levels.
Mohamed al-Hamli, Oil Minister from the United Arab Emirates, said the group probably won’t cut output through the end of the year. Venezuela, Opec’s third-largest producer, was the only holdout this week, favouring a cut in production of 500,000bpd to 1mn bpd because of rising global inventories.
Opec members produce about 40% of the world’s oil. Refineries in the US operated at 91.4% of capacity last week, the highest since before Hurricane Katrina struck on August 29.
The gain in refinery output didn’t reduce crude-oil supplies because of an increase in imports. US imports of oil rose 13% to 10.8mn bpd last week, the highest since August.
Crude supplies climbed 1.6mn barrels to 345.5mn barrels, leaving inventories 3.5% higher than a year earlier.
One bullish factor in the department’s report was an increase in gasoline consumption. Gasoline supplied in the US, a measure of demand, averaged 9.43mn bpd last week, up 2.6% from the prior week, according to the Energy Department report. Consumption over the past four weeks was 0.9% above the same period last year, the department said.
“Worries over Iran and continued strong gasoline demand will provide the impetus for crude oil prices to head higher next week,’’ said John Kilduff, vice president of risk management at Fimat USA in New York. “Other bullish factors include the falling dollar and continued production issues in Nigeria. There are many more reasons for crude oil prices to rise than fall.’’
Royal Dutch Shell Plc’s Nigerian venture shut 50,000bpd of oil output after a pipeline leak, increasing its lost production in the African nation to 505,000bpd, a spokeswoman said.
Nigeria pumped 2.08mn bpd in April, according to a Bloomberg News survey. The country is Opec’s fifth-biggest oil producer.
Oil markets are focused on the standoff over Iran’s nuclear programme. Concern about Iranian supply has helped push oil prices up 15% this year. Iran is the world’s fourth-biggest oil producer.
The five permanent members of the UN Security Council and Germany reached an agreement on Thursday on a package of incentives and penalties to persuade Iran to stop enriching uranium, UK Foreign Secretary Margaret Beckett said in Vienna. “We believe that they offer Iran the chance to reach a negotiated agreement based on cooperation,’’ Beckett told reporters late on Thursday.
The US announced that it was willing to join its European partners and sit down with Iran if it would end nuclear enrichment. The reaction from Iran on the offer was cool. Foreign Ministry spokesman Hamid Reza Asefi was quoted by the official Iranian news agency as saying that negotiations without conditions “would be the best solution.’’
“The bullish and bearish factors appear to be relatively balanced next week,’’ said Kurt Barrow, senior principal at Purvin & Gertz Inc, an oil and gas consultant in Singapore