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Oil ends over $2 lower; Saudis downplay OPEC cuts
Natural-gas futures lose almost 8% to end at a two-week low
By Myra P. Saefong & Ciara Linnane, MarketWatch
Feb 12, 2007
SAN FRANCISCO (MarketWatch) -- Crude-oil futures fell more than $2 a barrel Monday after the Saudi Arabian oil minister played down the prospect of further output cuts by major producers.
And natural-gas futures dropped nearly 8% with traders convinced that the recent winter weather in the U.S. won't be enough to save the market from a supply surplus before the winter ends.
Crude for March delivery closed down $2.08 at $57.81 a barrel on the New York Mercantile Exchange.
On Friday, the contract climbed to as high as $60.80 a barrel, gaining from a combination of a refinery snag in California, continued tension between the U.S. and Iran and cold weather. It later retreated to close at $59.89, but that was still its highest closing level for the year and marked a gain of nearly 2% for the week.
In an interview with The Wall Street Journal, Oil Minister Ali Naimi said the global oil market was in "much, much better health and balance" than it was a few months ago.
If the trend holds, there will be no need for another production cut or increase in supply at the next meeting of the Organization of Petroleum Exporting Countries, he said. Saudi Arabia is a key player in the oil cartel. See Wall Street Journal story (subscription required).
Naimi said the Saudi kingdom's production is now 8.5 million to 8.6 million barrels a day, confirming a reduction of 1 million barrels a day from its output about six months ago. The reduction is nearly double what Saudi Arabia agreed as part of two OPEC cuts hammered out at meetings in October and December. OPEC's next meeting is scheduled for March 15.
"Comments by Saudi Arabia's Oil minister ... as well as the fact that nothing major happened over the weekend in terms of geopolitical tensions" contributed to the Monday sell-off, said Emanuel Balarie, senior market strategist at Wisdom Financial.
"If anything, it seems that Iran's comments that they are willing to sit down for 'constructive talks' might result in some speculative money leaving the markets," he said.
Still, Iranian President Mahmoud Ahmadinejad said U.S. accusations that Tehran is stirring up violence in Iraq are an attempt to disguise Washington's own failures, the BBC reported on its Web site.
Ahmadinejad made the comments in an interview with ABC television in Tehran. "We have made it clear the lack of security in Iraq is to our disadvantage," he said.
At least 55 people were killed in three bomb attacks in market areas of the Iraqi capital Baghdad on Monday, according to the BBC.
Looking ahead, "the potential major-market mover seems to be the EIA numbers that are coming out later this week," said Balarie. The Energy Department will release its weekly data on U.S. petroleum supplies on Wednesday.
The data "will shed light not only on the effect cold weather had on inventory, but also the extent that OPEC followed through on its cuts," said Balarie.
Alaron Trading expects the data to show that crude supplies fell 3 million barrels for the week ended Feb. 9. But Wachovia Corp. is looking for a buildup of 1.5 million for crude supplies.
Alaron and Wachovia both predict that distillate inventories, which include heating oil, likely fell by 4 million barrels and that motor gasoline supplies climbed 2 million barrels.
"For now, barring any sort of unexpected news, I expect crude-oil prices to be somewhat range bound with decent support at $57.50," Balarie said.
Prices for petroleum products moved lower as well. March heating oil fell by 4%, surrendering 6.81 cents to stand at $1.657 a gallon, and March reformulated gasoline traded at $1.563 a gallon, down 3.2%, or 5.18 cents.
Natural-gas futures at two-week low
Meanwhile, natural-gas futures finished sharply lower, with the March contract touching a low of $7.19 per million British thermal units. The contract was down 7.7%, skidding 60.1 cents to close at $7.226.
Prices, which rallied nearly 5% last week as bitterly cold weather swept across the Midwest and the Northeast, haven't traded or closed at levels this low since Jan. 29.
The decline Monday came even as forecasts promised a snowstorm in the Northeast early this week, but the cold weather system that has descended on the U.S. is expected to break down by the end of next week, said Ben Smith, president of First Enercast Financial.
"Following this cold wave we should still have an extremely comfortable storage surplus with not much winter ahead," he said, in e-mailed comments.
Indeed, "lots of regions will start to see some spring-like weather soon, and buyers are reluctant to purchase $8 gas for March [which is] generally perceived as a shoulder month," said Beth Sewell, a managing partner at Quantum Gas & Power Services Ltd.
"Storage levels are now fairly close to this time last year, which was a warmer-than-normal year but still above the rolling five-year average," she said, in e-mailed comments.
"Also remember that pipeline deliverability caps the amount that can be pulled from storage in combination with current production output, so I still think even with another couple of weeks of high withdrawal reports, we will still end the season with a reasonably high level of in-tank storage," she said.
And there are financial issues to factor in. "We are going to see some strong withdrawals because inventory owners do not want to take a writedown on their assets, so they are pulling gas out of storage as hard as they can -- especially when they're faced with high spot prices," Sewell said.
In Monday's equities trading, benchmarks tracking oil-related shares edged lower, with the Philadelphia Oil Service Index registering the bigger losses. See Energy Stocks.
In metals, gold futures dropped $5 an ounce, cueing off the retreat in oil prices. See Metals Stocks.
Taking a broad measure of the commodities markets, the Dow Jones AIG Commodity Index stood at 163.82 points, down 2.1% from Friday. See more of the latest prices for commodity futures.
Myra P. Saefong is a reporter for MarketWatch in San Francisco.
Ciara Linnane is markets editor for MarketWatch in New York.
Futures and options trading involve substantial risk.
