futures firmed yesterday after Saudi Arabia said Opec needed to cut
production to stem a slide in prices. International benchmark Brent
crude futures initially rose 78 cents on the Saudi remarks to $24.65 a
barrel in London and ended 43 cents firmer at $24.30 a barrel. U.S.
light crude closed 41 cents up at $27.21 a barrel.|
A Saudi official said Riyadh believed the Organization of Petroleum
Exporting Countries should cut output by 1.5 million barrels per day
(bpd) to stabilize crude at $25 a barrel. Speaking after a weekend
summit of Gulf Arab leaders, the official told Reuters, "The
ministers of energy and petroleum of the GCC (Gulf Cooperation
Council) countries are clearly instructed by the heads of states to do
whatever is needed to achieve the targeted price of $25 for the Opec
"As of today's information we think the needed reduction to
balance the market is about 1.5 million bpd," the official said.
The kingdom's call for a sizeable production cut will carry weight
when Opec ministers meet in Vienna on January 17.
A cut of 1.5 million bpd would reduce production for 10 members with
quotas, excluding sanctions-bound Iraq, by 5.5 per cent to 25.2
million bpd. That would be enough to reverse the last two Opec
production hikes of 2000.
Opec raised supply by a total of 3.7 million barrels a day last year.
Opec, which still has bitter memories of a price collapse to below $10
a barrel in 1998, has been trying to tighten its management of prices
which skyrocketed to $35 a barrel in October.
Prices have fallen heavily since then and are currently near the lower
end of Opec's target range of $22-$28 for a basket of its crudes. The
slide came after last year's Opec supply hikes began appearing in
global inventory data. Brent fell below $23 a barrel and the Opec
basket below $22. Under its informal agreement last year, Opec should
cut supplies by 500,000 bpd
if prices stay below $22 for 10 working days.
Figures released by the Opec secretariat yesterday showed the price of
its basket of seven crudes were under the cartel's preferred range of
$22-$28 for seven working days up to last Friday, nearing the 10 day
deadline that would trigger a 500,000 barrel a day cut in production.
Price hawk Kuwait said it would lobby Opec for a cutback of 1.5-2.0
Opec states are worried that prices could plummet by the end of the
first quarter when peak winter demand dwindles. In Singapore, the
Asian crude market was weaker yesterday as Middle East benchmark Oman
crude slipped another notch to trade at deeper discounts.
Traders said the latest Oman deals, reported done last Friday, were at
around MOG -38 cents and MOG -35 cents. This compares to previous MOG
-30 cents trades. The former was sold by a Wall Street trader to a
Korean refiner, and the latter from a Chinese trader to a U.S. major.
Traders said that one Oman trade was also done on Dubai related
pricing at Dubai -75 cents, sold by a European trader into Thailand,
but this could not be confirmed. "The market is looking weak but
there could be a bottom already," one trader said. "At this
price, it is looking very attractive to buyers."
Among the factors that could floor the market was an expected official
selling price (OSP) cut from the Oman Ministry of Oil and Gas (MOG).
MOG officials said the retroactive December price will be set by
But the absence of Chinese demand may still pull the market lower.,
Chinese state traders said they were still just watching the market,
and were not ready to move as domestic refiners have given few import
orders. Key buyer China had largely stayed out of the Oman market
since January, as its refiners cut runs during the year-end due to
high products stocks. The Asian light sweet crude's market was steady
"The market should be about the same as January," one trader
with a major said. One major was offering a February 20-24 lifting
Australian Cossack cargo at around Tapis APPI +25 cents versus last
trades at APPI +18 cents. The medium sweet crude's market however was
Although sellers were relaxed, buyers said that there were still ample
prompt January availabilities of Indonesian crude's like Minas, Duri
and Cinta. Vietnam and Indonesia have February sell tenders for their crude's
closing on Thursday.
Some traders however said the market may get a boost as Indonesia
raised overseas processing of its crudes. State oil Petromin has
signed new third party processing deal to refine 70,000
barrels-per-day (bpd) crude in January to March at Shell's Singapore
refinery, with an option to increase the amount by 20 percent, a
company official said. In October, Petromin and Shell agreed on the
processing of 50,000 bpd.
Source: Gulf News
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As dealers consider
petroleum stocks adequate this winter, oil prices dropped on Friday
finishing the year more than $2 lower than prices at the end of 1999
and $12 lower from the mid-October peak. London Brent blend futures
dipped 61 cents to 23.10 a barrel, while U.S. light crude fell 23
cents to $25.62. According to the United States Department of Energy,
for the first time since April 1990, U.S. commercial crude oil stocks
had recorded a year-on-year surplus. This is a result of OPEC's four
production increases and the release of strategic reserves by the U.S.
Analysts expect inventories to build further in the first quarter,
which prompted several OPEC members to consider production curbs ahead
of the second quarter.