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Oil rebounds as OPEC keeps supply levels steady
Source: Agencies |
March 17, 2009, Tuesday
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OIL prices rebounded from an early retreat yesterday, as traders brushed aside OPEC supply-side issues and focused on higher stock prices.
Benchmark crude for April delivery gained US$1.10 to settle at US$47.35 a barrel on the New York Mercantile Exchange. Prices fell as low as US$43.62 overnight after OPEC decided to forgo further production cuts in favor of boosting compliance with existing ones.
Jim Ritterbusch, president of energy consulting group Ritterbusch and Associates, said OPEC's willingness to hold the line on supply is forcing traders to shift their focus to the demand side, and, at least for a day, the signs are good.
"It's just a feel-good thing that people are looking at and saying, 'Hey, this economy still has a chance to recover during the second half of this year, and if that happens oil demand's going to improve,'" Ritterbusch said.
Members of the Organization of Petroleum Exporting Countries said Sunday they will try to stick more closely to the group's current output quotas but will not make further cuts.
Phil Flynn, an analyst at Alaron Trading Corp., said de-facto OPEC leader Saudi Arabia recognizes that when people aren't buying the oil that's already being pumped, production cuts don't matter.
"I think they're starting to realize that they have to stimulate this economy with lower prices before they can get the long-term demand growth that they're looking for," Flynn said. "They've got to get back in step with the rest of the world that is trying to stimulate the economy as opposed to trying to slow it down by raising prices."
Oil prices rose from less than US$35 a barrel last month as investors anticipated the cartel would cut production by up to 1 million barrels a day on top of 4.2 million barrels of reductions announced since September.
While some of the oil producers at Sunday's meeting said they supported another cut, Saudi Arabia argued instead for stricter compliance with the existing output reductions. OPEC is overshooting its daily target level of just under 25 million barrels a day by about 800,000 barrels.
Flynn said the market should have known that if the Saudis weren't going to cut, no one else would.
A new cut remains an option during a May 28 OPEC special session to review prices and supply.
Saudi Arabia's oil minister said yesterday that petroleum-producing countries need a price of at least US$60 a barrel to bring more energy resources on the market.
"If we want all hydrocarbon resources developed worldwide, 40 dollars is not enough," Ali al-Naimi told reporters in Geneva, where he was attending an energy conference.
Analysts noted the presence of Russian Deputy Premier Igor Sechin at the Vienna meeting.
Russia has toyed with the idea of working more closely with OPEC to control the flow of oil to the world and Sechin on Sunday announced that his country is reducing crude sales.
Analyst and trader Stephen Schork said Sechin discussed having a permanent Russian representative at OPEC's Secretariat.
"Is this the first step to Russia joining OPEC? Stay tuned," Schork said.
Oil traders will likely turn their attention to global crude demand and the possibility of a second-half economic recovery.
Federal Reserve Chairman Ben Bernanke said Sunday on CBS' "60 Minutes" broadcast that the U.S. recession "probably" will end this year if the government succeeds in bolstering the banking system.
However, Bernanke said that even if the recession, which began in December 2007, ends this year, the unemployment rate will keep climbing past the current 8.1 percent, the highest level in 25 years.
Flynn said with continued weak heating demand and below-normal industrial demand, another round of weak prices is in the foreseeable future.
"It's getting harder to get excited about being long oil," he said.
In other Nymex trading, gasoline for April delivery gained 1.44 cents to settle at US$1.3673 a gallon, while heating oil added 1.58 cents to settle at US$1.2130 a gallon. Natural gas for April delivery lost 8.2 cents to settle at US$3.850 per 1,000 cubic feet.
In London, Brent prices lost 95 cents to settle at US$43.98 on the ICE Futures exchange.
Benchmark crude for April delivery gained US$1.10 to settle at US$47.35 a barrel on the New York Mercantile Exchange. Prices fell as low as US$43.62 overnight after OPEC decided to forgo further production cuts in favor of boosting compliance with existing ones.
Jim Ritterbusch, president of energy consulting group Ritterbusch and Associates, said OPEC's willingness to hold the line on supply is forcing traders to shift their focus to the demand side, and, at least for a day, the signs are good.
"It's just a feel-good thing that people are looking at and saying, 'Hey, this economy still has a chance to recover during the second half of this year, and if that happens oil demand's going to improve,'" Ritterbusch said.
Members of the Organization of Petroleum Exporting Countries said Sunday they will try to stick more closely to the group's current output quotas but will not make further cuts.
Phil Flynn, an analyst at Alaron Trading Corp., said de-facto OPEC leader Saudi Arabia recognizes that when people aren't buying the oil that's already being pumped, production cuts don't matter.
"I think they're starting to realize that they have to stimulate this economy with lower prices before they can get the long-term demand growth that they're looking for," Flynn said. "They've got to get back in step with the rest of the world that is trying to stimulate the economy as opposed to trying to slow it down by raising prices."
Oil prices rose from less than US$35 a barrel last month as investors anticipated the cartel would cut production by up to 1 million barrels a day on top of 4.2 million barrels of reductions announced since September.
While some of the oil producers at Sunday's meeting said they supported another cut, Saudi Arabia argued instead for stricter compliance with the existing output reductions. OPEC is overshooting its daily target level of just under 25 million barrels a day by about 800,000 barrels.
Flynn said the market should have known that if the Saudis weren't going to cut, no one else would.
A new cut remains an option during a May 28 OPEC special session to review prices and supply.
Saudi Arabia's oil minister said yesterday that petroleum-producing countries need a price of at least US$60 a barrel to bring more energy resources on the market.
"If we want all hydrocarbon resources developed worldwide, 40 dollars is not enough," Ali al-Naimi told reporters in Geneva, where he was attending an energy conference.
Analysts noted the presence of Russian Deputy Premier Igor Sechin at the Vienna meeting.
Russia has toyed with the idea of working more closely with OPEC to control the flow of oil to the world and Sechin on Sunday announced that his country is reducing crude sales.
Analyst and trader Stephen Schork said Sechin discussed having a permanent Russian representative at OPEC's Secretariat.
"Is this the first step to Russia joining OPEC? Stay tuned," Schork said.
Oil traders will likely turn their attention to global crude demand and the possibility of a second-half economic recovery.
Federal Reserve Chairman Ben Bernanke said Sunday on CBS' "60 Minutes" broadcast that the U.S. recession "probably" will end this year if the government succeeds in bolstering the banking system.
However, Bernanke said that even if the recession, which began in December 2007, ends this year, the unemployment rate will keep climbing past the current 8.1 percent, the highest level in 25 years.
Flynn said with continued weak heating demand and below-normal industrial demand, another round of weak prices is in the foreseeable future.
"It's getting harder to get excited about being long oil," he said.
In other Nymex trading, gasoline for April delivery gained 1.44 cents to settle at US$1.3673 a gallon, while heating oil added 1.58 cents to settle at US$1.2130 a gallon. Natural gas for April delivery lost 8.2 cents to settle at US$3.850 per 1,000 cubic feet.
In London, Brent prices lost 95 cents to settle at US$43.98 on the ICE Futures exchange.
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