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Crude sinks to 17-month low

By Chris Flood

Published: November 17 2006 18:49 | Last updated: November 17 2006 18:49

US crude prices dropped below $55 a barrel on Friday, their lowest level for 17 months, as anxiety and weakness spread across the commodities complex this week.

False rumours that crude storage facilities at Cushing in Louisiana, the delivery point for the West Texas Intermediate contract, were full, triggered selling on Thursday. The rumours underlined market concerns about excessive levels of US crude stocks and selling was also encouraged by concerns about mild winter weather in the northern hemisphere.

The expiry of the December WTI contract on Friday contributed to volatility but another factor was rumours that some hedge funds were in trouble after betting that oil prices would rise and were liquidating positions.

Nymex December WTI dropped 44 cents to $55.82 a barrel on Friday, down 6.3 per cent over the week. There was higher trading volume in the January WTI contract, which recovered to trade 12 cents higher at $58.69 on Friday, 4.6 per cent lower over the week. ICE January Brent rose 20 cents to $58.74 a barrel, down 1.6 per cent this week.

Earlier in the week, the Organisation of the Petroleum Exporting Countries appeared to be preparing the market for a further output cut in December. Sceptics doubt that some members will fully comply with the 1.2m barrels a day cut already agreed by the cartel. The impact of the supply threat was blunted by tanker tracking data this week that suggested Opec had not entirely reduced output to the quota level of 26.3m barrels a day agreed for November.

However, Adam Sieminski of Deutsche Bank said Petrologistics data suggested Opec’s output was down by 1.1m barrels a day in November compared with October, so “enough oil may already be off the market to re-tighten the picture in late 2006 and early 2007”.

Crude’s weakness put pressure on gold, down 1.1 per cent to $621.30 a troy ounce this week. Sentiment towards gold was bolstered by a stream of comments from China on the need for greater diversification of the country’s $1,000bn foreign exchange reserves.

Silver fell 1.5 per cent to $12.79 a troy ounce this week but GFMS, the precious metals consultancy, said a spike to the $15 level was possible with rising investment demand increasingly acting as the main price driver.

However, photographic demand for silver has been affected by the switch to digital cameras, industrial demand is expected to slow next year and a significant acceleration in mine production is forecast for 2007.

Platinum fell 3.4 per cent to $1,165 in spite of Johnson Matthey forecasting a 5 per cent increase in demand to a record 7.02m ounces this year, mainly owing to tighter emissions standards and increasing sales of diesel cars leading to growing consumption in autocatalysts.

Palladium dropped 4.5 per cent to $315 a troy ounce with a large supply surplus of 1.63m ounces expected this year, according to Johnson Matthey. Substitution of platinum with palladium in autocatalysts will boost demand but a 21.7 per cent fall in jewellery demand is expected.

Weakness in copper led to a retreat across base metals this week. The red metal retreated 1.4 per cent to $6,820 a tonne, under pressure from a 40 per cent rise in LME stocks since mid-October and concerns that demand in China is slowing.

Copper consumption in China is being affected by substitution of cheaper aluminium, down 2.6 per cent to $2,625 a tonne this week.

Lead dropped 10.7 per cent to $1,495 a tonne, breaking its upward run from June, while zinc fell 5.6 per cent to $4,060 a tonne. The International Zinc and Lead Study Group said the supply deficit in the zinc market rose by 261. per cent to 304,000 tonnes in the first nine monhs of the year. Nickel bucked weakness to firm 1.1 per cent at $29.750 a tonne.

Inventory to consumption ratios suggest extreme market tightness, so some traders think the sell-off of base metals will prove short- lived.

Orange juice traded 4.1 cents lower at $2.009 a pound on Friday after hitting a 16-year high of $2.035 on Thursday on concerns about poor crops in Florida and Brazil.

Copyright The Financial Times Limited 2006

R. Martins Escreveu:Segundo os analistas, a queda do petróleo fica a dever-se "ao tempo ameno nos EUA, ao abrandamento da maior economia do mundo e aos ruídos relativamente ineficazes vindos da OPEP relativamente a cortes da produção"

Oil Falls Most Since August 2005 on Signs OPEC Won't Make Cuts

By Mark Shenk

Nov. 16 (Bloomberg) -- Crude oil had the biggest one-day decline since August 2005 in New York on expectations OPEC members may not reduce production and a warm U.S. winter will curb demand.

Shipments from members of the Organization of Petroleum Exporting Countries were forecast to rise in a weekly report by Halifax, England-based consulting company Oil Movements. Geneva- based consultant PetroLogistics Ltd. said OPEC shipments would fall this month, in a report released today. OPEC agreed last month to cut output by 1.2 million barrels a day starting Nov. 1.

``The Oil Movements report added uncertainty about OPEC's cuts back into the market,'' said John Kilduff, vice president of risk management at Fimat USA in New York. ``We saw a lot of fund liquidation after the report today. The surging stock market has attracted a lot of the dollars that would otherwise be moving into energy markets.''

Crude oil for December delivery fell $2.50, or 4.3 percent, to $56.26 a barrel on the New York Mercantile Exchange, the lowest close since Nov. 18, 2005. Oil had the biggest one-day decline since Aug. 17, 2005. Prices are down 2.8 percent from a year ago.

Investors pushed prices higher the past four years as they poured money into energy, where returns outpaced other markets.

U.S. stocks rose for a fifth day and are heading for the seventh weekly advance in the past eight weeks. The Dow Jones Industrial Average climbed 54.11, or 0.4 percent, to 12,305.82 in New York. The Standard & Poor's 500 Index added 3.19 to 1399.76. The Nasdaq Composite Index rose 6.31, or 0.3 percent, to 2449.06.

Higher Temperatures

Above-average temperatures will cover the northern third of the U.S. from coast to coast this winter as an El Nino weather pattern persists, the U.S. Climate Prediction Center said in a report that covers December through February. A warmer-than- normal winter in the region would reduce demand for fuels used to run household and commercial furnaces.

El Nino refers to the warming of the ocean surface off the western coast of South America. The phenomenon affects the jet stream, alters storm tracks and creates unusual weather patterns. A moderate to strong El Nino typically brings mild winters to the northern U.S.

OPEC shipments will rise 0.9 percent in the month to Dec. 2 to 24.8 million barrels a day, compared with 24.6 million barrels a day in the four weeks ended Nov. 4, Oil Movements said today.

Divergent Views

According to PetroLogistics, crude oil shipments from 10 OPEC members with production targets, all except Iraq, will probably fall 1.1 million barrels a day, or 3.9 percent, to 27.2 million barrels a day this month.

OPEC will discuss production at its next meeting, which is scheduled for Dec. 14 in Abuja, Nigeria.

Natural-gas stockpiles rose 5 billion cubic feet to 3.45 trillion cubic feet last week, an Energy Department report showed. Some users switch between oil-based fuels and natural gas depending on cost. Crude-oil supplies rose last week, the department said yesterday.

``We are building natural-gas supplies as we get closer to winter, which is bearish,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``Also, yesterday's report showed a big gain in crude oil. There's just too much stuff around for prices to move higher.''

Crude-oil inventories rose 1.2 million barrels to 336 million barrels last week, the Energy Department report showed. It left stockpiles 12 percent higher than the five-year average for the week, the department said.

Brent crude oil for January settlement declined $2.07, or 3.4 percent, to close at $58.54 a barrel on the London-based ICE Futures exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net .