Oil futures fall to 3-week low on hope for more output

OPEC president says cartel may raise its quotas `significantly'

May 28, 2004|By BLOOMBERG NEWS

NEW YORK - Crude oil futures fell to a three-week low in New York yesterday after the Organization of the Petroleum Exporting Countries' President Purnomo Yusgiantoro said the group may raise its production quotas "significantly" at a meeting in Beirut, Lebanon, Thursday.

OPEC, which pumps more than a third of the world's oil, may boost its output targets by more than 2 million barrels a day from the current 23.5 million barrels when the group meets in Beirut, Purnomo said. Saudi Arabia, the world's largest oil exporter, is increasing production and is urging other OPEC members to do the same in an effort to lower prices.

"We're finally getting a reaction to the likelihood that OPEC will increase quotas on June 3," said Tom Bentz, a broker with BNP Paribas Futures Inc. in New York. "It looks like they will make a concerted effort to increase supply and not use the quota just to cover up the 2.3 million barrels a day that they are cheating."

Crude oil for July delivery fell $1.26, or 3.1 percent, to settle at $39.44 a barrel on the New York Mercantile Exchange, the lowest close since May 10. Oil reached $41.85 a barrel on May 17, the highest since trading began in 1983. Prices were up 35 percent from a year earlier.

In London, the July Brent crude-oil futures contract fell 83 cents, or 2.2 percent, to settle at $36.25 a barrel on the International Petroleum Exchange. Prices were 38 percent higher than a year earlier.

One OPEC "option is to increase the quota significantly so it will bring a significant psychological impact to lower prices," said Purnomo, who also is Indonesia's energy and mineral resources minister. OPEC nations haven't reached an agreement to raise the production limit, he said.

The 10 OPEC members with quotas - all except Iraq - pumped 25.85 million barrels of oil a day last month, exceeding their quotas by 10 percent, according to a Bloomberg survey of oil companies, producers and analysts.

Saudi Arabia is probably pumping 8.6 million barrels a day this month, up 300,000 barrels a day from April, PetroLogistics Ltd, a Geneva-based oil consultancy, said yesterday.

The kingdom said it will pump 9 million barrels a day in June and may later increase that to 10.5 million to help lower oil prices that have risen to a record this month.

"We also have positive signs from Mexico, Nigeria and Russia that production will rise to meet the global demand," U.S. Energy Secretary Spencer Abraham said in Moscow, Reuters reported.

Non-OPEC Mexico was the second-biggest source of U.S. imports after Canada, another non-OPEC producer, in March, according to Energy Department figures. Russia, which vies with Saudi Arabia for the position of top oil producer, expects output will rise 7 percent this year to 9 million barrels a day, said Sergei Oganesyan, head of the Federal Energy Agency.

U.S. crude-oil supplies were unchanged at 298.9 million barrels last week, the Energy Department said yesterday. Inventories were 4.4 percent higher than a year earlier. The U.S. consumes a quarter of the world's oil.

"We're due for a sharp correction in a short space of time," said Doug Leggate, an analyst at Citigroup Inc. in New York. "Inventories don't support prices at this level. Stocks support a price $10 lower."

For the first time in six weeks, hedge funds and other large speculators reduced their bets that oil futures will rise, according to a report from the U.S. Commodity Futures Trading Commission. Speculative long positions, or futures and options bought, outnumbered shorts, or contracts sold, by 111,546 contracts in the week that ended May 18, a 15 percent decline from the prior week.

Longs are bets that prices will rise and shorts are bets that prices will fall.

"Speculators have been driving the market since the end of the Iraq war," Leggate said. The decline in futures could accelerate because "speculators aren't looking at the fundamentals. They follow momentum."

An OPEC increase would come as refiners are struggling to boost U.S. gasoline supplies before the peak-demand summer driving season. About 10 percent of the world's crude oil goes into making gasoline for the U.S. market.

Gasoline for June delivery fell 3.4 cents, or 2.4 percent, to settle at $1.3852 a gallon in New York. Prices reached $1.47 last Thursday, the highest since the contract began trading in 1984. Futures were up 55 percent from a year earlier.

Retail gasoline prices have jumped to records as wholesalers and station owners pass on their higher costs. Pump prices for regular gasoline, averaged nationwide, rose 1.9 cents to a record $2.052 a gallon on Wednesday, according to AAA, formerly the American Automobile Association.

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