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Oil prices drop gathers momentum
By Isabelle Tourne
AFP
NEW YORK
Petroleumworld.com 09 13 06
Oil prices tumbled to fresh multimonth lows Tuesday as traders scaled back forecasts for global energy needs and geopolitical concerns retreated further.
New York's main contract, light sweet crude for delivery in October, slid 1.85 dollars to close at 63.76 dollars per barrel.
At one point Tuesday, the price dropped to 63.66 dollars -- the lowest point since March and some 19 percent below its record high of 78.40 dollars reached on July 13.
In London, Brent North Sea crude for October delivery lost 1.56 dollars to 62.99 dollars per barrel at the settlement, after falling briefly to 62.79 dollars, also the lowest level since March and 20 percent down from last month's record highs.
"Oil, gas and natural gas have relentlessly hammered the sell side seemingly squeezing every available penny of risk premium out of the market," said Phil Flynn at Alaron Trading.
"That premium of course includes a less than active hurricane season, a perceived lessening of tensions with Iran and OPEC's promise to continue pumping oil."
"The petroleum market's run of bearish news continues today with a bearish monthly report from the International Energy Agency," Citigroup analyst Timothy Evans said.
The IEA said Tuesday that the world's hunger for oil products seems to be abating after a seven-year binge.
The growth of consumption would be slightly less strong than expected this year and next, mainly in the United States and Mexico, the IEA said in a monthly report.
The report highlighted "a precipitous 30.0 percent decline in the US gasoline market, dragging down crude prices by six to 18 percent."
Weighing also on prices was a decision by the oil-producing cartel OPEC on Monday to maintain its high output rate, as well as easing concerns over Iran, traders noted.
"Geopolitical turbulence seems to have calmed for the moment," said John Kilduff at Fimat USA.
"Iran appears to have backed off slightly from its hardline stance on nuclear enrichment. Iran and Iraq plan to develop oil fields that straddle their border, deepening commercial ties between them."
"Regarding Iran, the market's perception is that it's increasingly evident that there won't be any supply disruptions," added James Williams at WTRG Energy.
The market faced lingering concerns about Nigeria, Africa's biggest oil producer, which supported prices in earlier trade.
Nigeria's two main oil workers' unions said that they would launch a three-day strike on Wednesday to protest against insecurity in the Niger Delta.
Nigeria is the world's sixth biggest crude exporter with 2.6 million barrels per day, but 20 percent of that figure is currently lost to unrest in the region.
Bart Melek at BMO Nesbitt Burns said the sharp drop in the past two weeks stemmed from the fact that "traders are increasingly convinced that supplies will stay at elevated levels and demand will wane."
"At the same time that US oil and gasoline inventories remain stubbornly above the five-year average and demand looks weaker, OPEC announced that it plans to keep output near current levels," Melek added.
"Given a slowing US economy and lower-than-expected industrial activity in the rest of the G7 (Group of Seven industrial powers), OPEC's decision to keep production steady will likely lift inventories even higher."
But Melek said there may be limits as to how far oil prices drop.
"While we do think that the fundamentals support a still lower price, one should not expect a price significantly below 60 dollars over the longer-term as OPEC will most certainly reduce output if prices plunge from current levels," he said.
"The cartel controls just over 40 percent of global production and is very sensitive to revenue declines."
Melek also said the notion that the Iran crisis will go away "seems overly optimist, so the geopolitical risk premium on oil prices will largely maintain in tact."
AFP 12 2128 GMT 09 06
Copyright ©2006 AFP. All Rights Reserved.
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