Poor Oil Zombies: Benchmark U.S. Crude Plunges

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Tuesday July 4 11:50 PM ET

Benchmark U.S. Crude Plunges

SINGAPORE (Reuters) - Benchmark U.S. NYMEX light crude futures woke from a two-day break to a hammering in early Asian trade on Wednesday as the market reeled from Saudi Arabia's vow to release more oil to cool heated prices.

In the first reaction to the Saudi initiative, New York Mercantile Exchange (NYMEX) crude futures plunged by $1.54 per barrel to $30.96 per barrel by 0327 GMT.

The market had settled at $32.50 on Friday.

The New York market was closed on Monday and Tuesday for U.S. Independence Day holidays, and U.S. traders returned to the market on Wednesday to face the prospect of sharp price falls on the heels of a similar correction on the London futures market.
-- cpr (buytexas@swbell.net), July 05, 2000


Let's hope Saudi Arabia carries through on what they've said. Twice already we've heard promises from OPEC that temporarily sent prices down but which then rose again after the market realized the promises were mostly token gestures.

-- ($1.65@per.gallon), July 05, 2000.

http://abcnews.go.com/sections/business/DailyNews/opec_masterman000704 .html


Over a Barrel

Sources: Saudis May Move to Lower Oil Prices

By Sue Masterman

V I E N N A, Austria, July 4  Saudi Arabia appears to be gathering allies in its move to quickly put even more oil into the market after an agreed increase in OPEC quotas failed to bring the price of oil down from nearly $30 a barrel.

Saudi sources were quoted as saying that the country, the only OPEC member with the capacity to pump significant quantities of extra oil so quickly, was considering putting an extra 500,000 barrels of oil a day, or bpd, on the market immediately.

Saudi Oil Minister Ali al-Naimi told the official Saudi Press Agency (SPA) his country, in consultation with other producers, would increase output if prices dont fall from more than $30 now to OPECs target of $25 a barrel.

We have sought, and will continue in any way we can, to bring the prices down from their current level to the target levels of $25 per barrel of OPEC basket of crudes, Naimi told SPA.

If the price does not decrease, Saudi Arabia, in conjunction with other producers, will increase production by 500,000 bpd, within the next few days.

Unilateral Action?

It was not clear if this oil would come from Saudi Arabia alone or from a consortium of OPEC and non-OPEC countries. Earlier, an OPEC source told Reuters that the kingdom was willing to unilaterally increase output if other producers could not.

If the other producers are unable to increase production, Saudi Arabia is willing to do it alone, the source said.

And OPEC President Ali Rodriguez of Venezuela said he knew nothing about Saudi Arabias decision, even as an official from OPEC member Qatar said the Saudis were acting alone.

But today Iranian Oil Minister Bijan Zanganeh told Reuters and Iranian television that Naimi had promised him Saudi Arabia would continue to work inside OPEC.

Mr. Naimi assured me in a telephone conversation he had with me today that Saudi Arabia will continue to act within OPEC frameworks and will not move outside them, Zanganeh told reporters.

Consultations between Iran and Saudi Arabia will continue about oil matters on a regular basis. Any decision on oil output hike will be on the basis of OPECs decisions and understandings among all OPEC members, he said.

Many Factors to Price Decline

Rodriguez said on June 29 that he expected the extra output of 708,000 bpd agreed at the OPEC June meeting, which started July 1, to have a moderating effect on oil prices.

He added that OPEC leaders would evaluate the effects of the increase after one or two weeks and make whatever corrections were necessary.

The Venezuelan minister emphasized that it would take time to bring oil and gasoline prices down. As soon as the U.S. resolves its gasoline problem, and as soon as crude oil from the Gulf States arrives in the U.S., all of these factors will lead to a fall in the oil price, he said.

It takes an average of 45 days for a cargo of crude oil from the Gulf to reach American refineries. From there it takes several weeks more to reach the pump as gasoline, promising no relief for motorists during the vacation season.

On June 30, the eve of the deadline for the agreed to extra 708,000 bpd to enter the market, OPEC Secretary General Rilwanu Lukman, Nigerias oil minister, said that the new oil should be given time to have the desired bearish impact on high prices, but if that did not happen the group would be obliged to put in extra.

Oil Remains Above $28 per Barrel Mark

OPEC agreed at its regular meeting in March on a mechanism to put extra 500,000 bpd into the market if the price remained significantly above $28 a barrel for more than 20 consecutive days. That point was reached before the June meeting, but a decision was delayed until the latest gathering.

The oil price has remained consistently above the $28 level in spite of the OPEC announcement that more oil was to be pumped.

Rumors have been circulating ever since the June meeting that Saudi Arabia was consulting with the other Gulf states, and with non-OPEC countries such as Norway and Mexico, on what measures to take if the fresh OPEC input failed to bring the oil price down close to the desired $25 level.

Saudi Arabia, the major OPEC producer, is known to have been unhappy with the increase agreed to at the June meeting. It wanted to see an extra 1 million bpd or more, in line with U.S. wishes.

Saudi Arabia is the only country with the capacity to produce larger quantities of extra oil quickly. Qatar, the United Arab Emirates and Kuwait could all produce extra oil, but in smaller quantities.

Supplier May Fear Economic Fallout

Saudi Arabia, which depends heavily upon its oil income, has recently been plagued with economic problems. It is known to fear that a longer spell of high oil prices would damage its long-term economic prospects.

Other oil countries, such as Iran, which has no significant extra capacity, fear that if Saudi Arabia gets its way, the smaller OPEC producers will effectively see a cut in their production quota in the long term. Iran says it has no problem with the higher oil price.

Since the OPEC mechanism to tackle a persistent high oil price is in place, Saudi Arabia may feel that it is authorized to go ahead with an increase in production without another OPEC meeting to sanction it. The next OPEC regular meeting is scheduled for September 10th.

Reuters contributed to this report.

-- (new@news.now), July 05, 2000.

Oh Ceep always has to be right. I'm starting to think he might actually know what he is talking about and that the rest of you might not.

-- No Fan of Ceep (but@maybe.someday), July 05, 2000.


How would you play falling oil prices on the stock market?

-- (lars@indy.net), July 05, 2000.

Sell the options SHORT. Its done every day. There are "puts" but they ride on the underlying prices of the commodity. They are pure gambling and you can loose 100%. Of course, in the commodity, you can lose more.

-- cpr (buytexas@swbell.net), July 05, 2000.

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