Oil jumps after OPEC sets fresh supply cut

Thursday, December 14, 2006

Oil jumps after OPEC sets fresh supply cutCartel has agreed to cut oil output by 500,000 barrels a day, or 2 percent, but not until February.

December 14 2006: 7:22 AM ESTLONDON (Reuters) -- Oil prices jumped on Thursday morning on OPEC's decision to cut oil output by 500,000 barrels a day beginning in February.

Front-month January contracts for U.S. light crude climbed $1.07 to $62.43 a barrel in electronic trading, on top of a 35-cent gain on Wednesday.

In London, Brent crude for January delivery rose $1.09 to $62.42 a barrel.

The U.S. government reported Wednesday that crude stocks fell 4.3 million barrels last week as imports declined, while the International Energy Agency said industrialized countries' crude stocks fell 40 million barrels in October - a trend that continued last month as well.

The numbers strengthened the position of OPEC delegates who preferred to enforce the last cut before adding a new one.

"We are satisfied with the decision we took in Doha," Kuwaiti Oil Minister Sheikh Ali al-Jarrah al-Sabah told reporters, referring to OPEC's emergency gathering in October.

Oil has fallen from a mid-July peak of $78.40 but is still historically high at triple the price at the end of 2001.
Higher Asian demand coupled with worries over supply from Iraq, Nigeria, Iran and Russia helped fuel the rally.

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Oil Prices Up After US Inventories Decline OPEC ministers say may hold off on more oil cuts
http://today.reuters.com/news/articlebusiness.aspx?type=ousiv&storyID=2006-12-13T175219Z_01_L13135896_RTRIDST_0_BUSINESSPRO-OPEC-MEETING-DC.XML&from=business

Tuesday, December 13, 2006
Reuters.comBy Barbara Lewis

ABUJA (Reuters) - OPEC appeared willing on Wednesday to pull back from more oil output cuts, responding to consumer nation calls to hold off until winter has passed to guard against price spikes that would hurt the world economy.

OPEC, which produces over a third of the world's oil, will hold talks on Thursday to decide whether to curb supplies beyond the 1.2 million barrels per day ministers agreed from November 1.

Some ministers and officials signaled their priority was to ensure compliance with that deal, which succeeded in arresting a 25 percent price slide, before making additional reductions.

"I don't think there will be any cut," the head of Libya's delegation, Shokri Ghanem, told Reuters on Wednesday.
OPEC ministers agree the market is oversupplied -- stocks in top consumer, the United States, are the highest since 1998 for the time of year -- but some fear cutting during peak demand could drive prices further above $60 and hurt consumer nations.

The opinion of leading exporter Saudi Arabia is key in determining OPEC output policy. Oil Minister Ali Al-Naimi told reporters on his arrival the market was in better shape than when ministers last met, at October's emergency talks.

"The fundamentals of the market are much better than they were in October," he said, adding: "We probably have a little work to do to make it an even better, more stable market."

"We have to work together as a team," Naimi said. "We have done well so far, we may have to do some more."

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Expected Supply Drop
By Robert Tuttle
Dec. 13 (Bloomberg) -- Oil futures rose for the first time in four sessions in New York after a government report showed the biggest decline in inventories since July.

Supplies of crude oil fell 4.3 million barrels, or 1.3 percent, to 335.4 million barrels in the week ended Dec. 8, the Energy Department reported today. Refineries operated at 89.1 percent of capacity, 1.4 percentage points less than a week earlier. OPEC ministers meet in Nigeria tomorrow to discuss an output cut to counter higher-than-normal crude inventories.

``I am a bit surprised by the magnitude of the crude draw,'' said Andy Lipow, president of Lipow Oil Associates LLC, a consulting company based in Houston. ``It seems to be very strange that crude drew so much while the refinery operating factor declined as well.''

Crude oil for January delivery rose 35 cents, or 0.6 percent, to $61.37 a barrel on the New York Mercantile Exchange. Prices are up 4.9 percent in the past month.

The decline in crude oil inventories left supplies 13 percent above the five-year average.

Refineries ``are flush with crude,'' said William Adams, chief energy and capital market strategist at LaSalle Futures Group Inc. in Chicago. OPEC ``really needs to cut now because there is no one out there to buy, there is no immediate or short- term demand.''

Crude oil, expressed in euros, has fallen 9.8 percent this year, risen 0.3 percent in yen and has dropped 12 percent in British pounds.

Brent crude oil for January settlement fell 19 cents to $61.33 a barrel on the ICE Futures exchange in London. Today was the eighth straight decline for Brent, the most consecutive daily drops in more than a year.

OPEC Meeting

The Organization of Petroleum Exporting Countries, producer of 40 percent of the world's oil, may postpone deciding on further output cuts at its meeting tomorrow, the group's president, Edmund Daukoru, said today.
``It doesn't have to be a cut,'' Daukoru said in Abuja, Nigeria.

OPEC's basket price, a weighted average of 11 blends produced by OPEC nations, fell 33 cents to $57.41 a barrel yesterday.

``We have probably a little more work to do to make it a better, more stable market,'' said Saudi Arabian Oil Minister Ali al-Naimi. ``The fundamentals of the market are much better today than they were in October,'' al-Naimi told reporters today in Abuja. He declined to say whether he would support a cut.

$60 Is `Fair'

Crude oil at $60 a barrel is ``fair'' to both producers and consumers, Kuwaiti Oil Minister Ali Jarrah al-Sabah said in Nigeria today. Iran and Venezuela have called for further cuts.

Libya's top oil official, Shokri Ghanem, told reporters in Abuja that there is ``no need'' for OPEC to cut output at this meeting and that current oil prices are ``OK.''

The group agreed to trim output by 1.2 million barrels a day last month, citing rising stockpiles. The 11 nations reduced daily production by an average 550,000 barrels in November, according to a Bloomberg News survey of producers, analysts and traders.

``It looks like OPEC ministers have come to an agreement that they aren't going to cut'' until the most recent cut is more fully complied with, said Gordon Elliott, risk management specialist at FC Stone LLC in St. Louis Park, Minnesota.

Fuel Inventories

Supplies of distillate fuel, including heating oil and diesel, dropped 445,000 barrels to 131.9 million barrels, leaving supplies 0.2 percent below the five-year average, according to the Energy Department.
Gasoline inventories fell 174,000 barrels to 199.9 million barrels, leaving supplies 4.1 percent below the five-year average.

``The market is going to be dragged up and gasoline is going to lead the way,'' Lipow said.
Reformulated gasoline, or RBOB, rose 2.5 cents, or 1.6 percent, to $1.6221 a gallon in New York. The fuel is made to be blended with ethanol before delivery to filling stations.

In a report today, the International Energy Agency, an adviser to 26 oil-importing nations, maintained global demand forecasts for 2006 and 2007. It said China's 2006 oil demand growth will be 5.6 percent, down from a previous estimate of 6.2 percent.

Crude oil inventories fell 40 million barrels in October to 2.7 billion barrels, equal to 54 days of consumption, a day less than in September, the IEA said in its report. The agency cautioned that high oil prices could trim demand.

Eni SpA said it restored production at the Okono/Okpoho offshore fields in Nigeria over the weekend, bringing back 55,000 barrels a day. Eni had declared force majeure at the fields, meaning the company could not meet contracts, after armed militants attacked last month.

To contact the reporter on this story: Robert Tuttle in New York at rtuttle@bloomberg.net

Summary of Weekly Petroleum Data for the Week Ending December 8, 2006

U.S. crude oil refinery inputs averaged 15.3 million barrels per day during the week ending December 8, down 169,000 barrels per day from the previous week's average.

Refineries operated at 89.1 percent of their operable capacity last week. However, gasoline production increased last week compared to the previous week, averaging nearly 9.3 million barrels per day, while distillate fuel production declined, averaging over 4.0 million barrels per day.

U.S. crude oil imports averaged 9.6 million barrels per day last week, down 701,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged over 10.0 million barrels per day, 132,000 barrels less than averaged over the same four-week period last year.

Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 967,000 barrels per day. Distillate fuel imports averaged 465,000 barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 4.3 million barrels compared to the previous week.

However, at 335.4 million barrels, U.S. crude oil inventories remain well above the upper end of the average range for this time of year. Total motor gasoline inventories inched lower by 0.1 million barrels last week, and are below the lower end of the average range.

Distillate fuel inventories declined by 0.5 million barrels, and are in the lower half of the average range for this time of year. A decline in high-sulfur distillate fuel (heating oil) inventories more than compensated for a slight rise in diesel fuel inventories (a combination of ultra-low-sulfur and low-sulfur).

Total commercial petroleum inventories fell by 7.5 million barrels last week, and are just above the upper end of the average range for this time of year.

Total products supplied over the last four-week period has averaged 21.0 million barrels per day, or 0.7 percent more than averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged over 9.3 million barrels per day, or 1.9 percent above the same period last year.

Distillate fuel demand has averaged nearly 4.3 million barrels per day over the last four weeks, or 3.0 percent above the same period last year. Jet fuel demand is down 6.5 percent over the last four weeks compared to the same four-week period last year.