BLBG: Oil Falls on Concern Demand to Drop More Rapidly Than Supply
Crude oil fell for a fifth day in New York, extending last week’s 12 percent drop, on concern production cuts by the Organization of Petroleum Exporting Countries will fail to counter a slump in demand.
Deutsche Bank AG on Jan. 10 predicted oil consumption will fall by 1 million barrels a day this year. U.S. supplies have climbed in 13 of the past 15 weeks as the economy slows, according to the Energy Department. OPEC members Saudi Arabia, Iran, Qatar, Venezuela and Kuwait signaled last week that they would be cutting their sales to refiners in February.
“What OPEC has done is probably going to be enough to tighten up the market and support the oil price, but it will take a while for those production cuts to eat away at inventories,” said David Moore, a commodity strategist at Commonwealth Bank of Australia. “The near-term contracts are still very low and that reflects the fact we still have ample supplies at the moment.”
Crude oil for February delivery fell as much as 68 cents, or 1.7 percent, to $40.15 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $40.31 a barrel at 12:25 p.m. in Singapore.
On Jan. 9, prices in New York dropped 2.1 percent to $40.83 a barrel after the U.S. said it lost 2.589 million jobs last year, the most since 1945.
Oil prices may continue to fall this week on reports of lower-than-expected fourth-quarter earnings results from companies such as aluminum-maker Alcoa Inc., which is forecast to post a loss.
‘Downward Pressure’
“This week, we’ll see more earnings reports for the fourth quarter for the U.S. corporates and those will likely be bad news,” said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. “That expectation is putting downward pressure on oil.”
OPEC, supplier of more than 40 percent of the world’s oil, agreed last month to cut production quotas by 9 percent to revive prices as the global recession erodes demand. Oil has plunged more than $100 in the last six months.
Saudi Aramco, the world’s biggest state oil company, sent notices to refiners in Asia on Jan. 9 that it would lower crude supplies to Asia by around 10 percent in February. This was the third month the company had cut sales.
OPEC may cut its production further should crude prices continue to decline, Iran’s OPEC Governor Mohammad Ali Khatabi was cited as saying Jan. 11 by the Oil Ministry. OPEC is scheduled to meet next in Vienna on March 15. Iran is the group’s second-largest producer, after Saudi Arabia.
Contango Market
Oil for March delivery is at a more than $5 a barrel premium to the front-month contract, while the April future is $9 above February-delivered supplies. The situation where near- term crude is cheaper than later-dated oil is called contango.
“The curve is very steep, which is consistent with the view that the market tightens up in time and we get higher prices down the track,” Commonwealth’s Moore said.
Oil for February dropped last week as stockpiles at Cushing, Oklahoma, the delivery point for crude traded at Nymex, climbed to 32.2 million barrels, the highest since the U.S. Energy Department started tracking the supplies in 2004. Total capacity in the area is around 47.7 million barrels, according to estimates from Andy Lipow at Houston-based consultants Lipow Oil Associates LLC.
Last week’s decline followed a 23 percent jump the week before, the most since August 1986.
Brent crude for February settlement rose as much as 28 cents, or 0.6 percent, to $44.70 a barrel on London’s ICE Futures Europe exchange. It was at $44.51 a barrel at 12:14 p.m. Singapore time. The contract on Jan. 9 fell 0.6 percent to $44.42 a barrel.
Net-Longs Increase
Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended Jan. 6, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 76,658 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 12,110 contracts, or 19 percent, from a week earlier.
“While the near-term months will be trading between $35 and $45, when we get to the end of the year, there will be hopefully an economic recovery,” said Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore, in an interview with Bloomberg Television. “But we’ll still have oil in storage flooding market, so we’ll be in more of a $45 to $55 range. That’s what you can garner from looking at the futures curve.”
The average price of regular gasoline at U.S. filling stations rose to $1.78 a gallon on speculation refinery maintenance may reduce stockpiles in the weeks ahead.
The motor fuel gained 12 cents, or 7.2 percent, in the three weeks ended Jan. 9, according to oil analyst Trilby Lundberg’s survey of 7,000 filling stations nationwide.
