BLBG: Oil Set for Biggest Weekly Drop in Month as OPEC Cuts Forecast
Crude oil traded little changed, set for the biggest weekly decline in a month, after OPEC said demand will drop this year amid a global recession.
Consumption of OPEC crude will shrink 4.2 percent to 29.5 million barrels a day, according to the group’s monthly report released yesterday. The discount of oil in New York to the Brent grade in London widened to a record $10.79 a barrel because of rising supplies at Cushing, Oklahoma, the delivery point for the West Texas Intermediate barrels traded on the U.S. exchange.
“The current picture of continuing bad economic news means it will be a long while until we see demand recovery,” said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. “WTI has completely disconnected from the rest of the world’s benchmark crude oils,” he said.
Crude oil for February delivery was at $35.61 a barrel, up 21 cents, on the New York Mercantile Exchange at 12:21 p.m. Singapore time after falling as much as 27 cents, or 0.8 percent, to $35.13. The contract expires on Jan. 20. Yesterday, futures dropped 5 percent to $35.40 a barrel, the lowest settlement since Dec. 24. Prices have fallen 13 percent this week and declined 20 percent this year.
The more-active March contract was at $43.56 a barrel, up 2 cents, at 12:21 p.m. Singapore. The future had 2,199 contracts traded against 1,032 for the February contract.
Brent crude oil for March settlement was at $47.56 a barrel, down 12 cents, at 10:51 a.m. Singapore time on London’s ICE Futures Europe exchange yesterday. The February contract expired yesterday at $44.69 a barrel.
Cushing Stockpiles
Crude-oil inventories at Cushing, Oklahoma, where West Texas Intermediate traded on the Nymex is stored, climbed 2.5 percent to 33 million barrels last week, the Energy Department said this week. It was the highest since at least April 2004, when the department began keeping records for the location.
“We’ve got a pricing structure that favors storing crude,” said Purvin & Gertz’s Shum. “But now WTI has nowhere to go. So whoever is holding a prompt month contract when it approaches expiry is trying to sell.”
The price of oil for delivery next December is 65 percent higher than for the front-month contract, allowing traders to profit if they can store crude. February 2009 crude ended yesterday at a $8.14 discount to March, from $3.88 on Jan. 5. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango.
“It is the fundamentals driving this,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. “You just have way too much supply in Cushing. The February contract has basically become worthless now as a benchmark. With only a few days left, the contract is acting on its own accord.”
‘Major Contraction’
There will be a “major contraction” in demand among members of the Organization for Economic Cooperation and Development, with the United States being the “main contributor,” to this reduction, OPEC said.
The Organization of Petroleum Exporting Countries shaved its global demand estimate for 2009 by 20,000 barrels to 85.66 million barrels a day. That brings this year’s reduction to 180,000 barrels a day, or 0.2 percent.
U.S. fuel demand fell 6 percent last year, the biggest drop since 1980, as prices touched records and the economy contracted, the industry-funded American Petroleum Institute said yesterday.
U.S. crude stockpiles increased 1.14 million barrels to 326.6 million barrels last week, the highest since Aug. 31, 2007, the Energy Department said Jan. 14. Gasoline and distillate fuel supplies also rose.
