OPEC Delegate Hints at Output Rise to Limit Prices
By NEELA BANERJEE
n an effort to restrain oil prices, which have reached their highest levels in two years, the Organization of the Petroleum Exporting Countries is considering increasing production by 500,000 barrels a day in the next two weeks or so, a senior OPEC delegate said yesterday.
Reports of the potential move helped lead to a 4.1 percent decline in the commodity price of crude oil. In New York, oil for February delivery fell $1.35 yesterday, to $31.37 a barrel. Earlier in the day, the price soared to $33.65, the highest point in two years. Prices for gasoline and heating oil fell as well.
But traders cautioned that the decrease might not be part of a trend. The OPEC members that have the spare capacity to produce additional crude oil are in the Persian Gulf region, and it generally takes 40 to 50 days for oil from there to arrive in the United States. That may be too long a wait to compensate for the cutbacks in oil that have been caused by a general strike in Venezuela, and prices may soon rebound, industry analysts and traders warned.
"People started to take profits when the OPEC news came out," said Philip J. Flynn, senior market analyst for Alaron, a Chicago futures-trading firm. "The market was ready to move down anyway. People were looking for an excuse to sell off. Nothing fundamentally has changed, even if OPEC raises production, because it will take five or six weeks for the oil to get here."
OPEC has a system called the price-band mechanism that calls on members to confer and explore changing production limits if prices for a group of different crude oils fall below $22 a barrel or rise above $28 a barrel for 20 consecutive trading days. The organization was quick to reduce production by 500,000 barrels a day when prices lagged, though it has been reluctant in the past to increase production by similar quantities when prices rose.
But oil prices have been above $28 a barrel for about two weeks now, and OPEC members are nervous that the high prices will curtail global demand. There is usually a lag of a few weeks between a rise in crude oil prices and a commensurate increase in the retail prices of fuels like gasoline and heating oil. And those prices, too, jumped sharply last week.
"OPEC is watching prices closely," said the senior delegate, who spoke on the condition of anonymity. "They don't like it to go above $28. OPEC has a commitment not to allow a shortage to take place."
OPEC now pumps 23 million barrels a day, though industry analysts contend that members produce above their official quotas to take advantage of high prices. OPEC members are supposed to reduce their overproduction tomorrow, but "no one has really cut, given the situation in Venezuela," said Gary N. Ross, chief executive of the PIRA Energy Group, a New York consulting firm.
The four-week strike in Venezuela against the government of President Hugo Chávez has virtually brought the oil industry there to a standstill and reduced exports to a trickle. Venezuela is the fourth-largest exporter of oil to the United States, accounting for about 14 percent of this country's imports.
Venezuelan officials said they had taken steps to revive production, but oil traders said they remained skeptical.
The OPEC disclosure may not salve the overheated oil market in the near term, but the member nations' oil will be needed if the standoff in Venezuela between opponents and supporters of Mr. Chávez drags on, as it appears likely to do, Mr. Ross said. "They're trying to jawbone a bit to get the price down now," he said, adding, "Even 45 days from now the market may still need the oil, with the Venezuelan situation and what might come with Iraq."
Besides the long wait for oil from the Persian Gulf, replacing Venezuelan oil may be complicated by the kind of oil that is now available. Some types of Venezuelan crude oil are very "heavy," or viscous, and such oil, the OPEC delegate said, might not be readily available in the quantities that United States refiners need. Several refineries in the United States and two large ones in the Caribbean that supply this country have sharply reduced their output because of the shortage of Venezuelan crude oil.
Mr. Ross pointed out, however, that those refineries could use a different grade of crude oil, though they would not run as efficiently. And they may be able to increase output again, he added.
The American Petroleum Institute is expected to release its weekly oil storage data today, which would give the markets a clearer sense of the effect of the Venezuelan situation. Traders said they expected stocks of crude oil and petroleum products to be considerably lower than the week before. Mr. Ross estimated that refiners had about 20 days' worth of supplies at the current pace of oil processing.
"When the A.P.I. data come out this week," Mr. Flynn said, "I think the market will get a nice big slap in the face."
Natural Gas Prices Fall By Bloomberg News
Natural gas futures tumbled yesterday to the lowest level in more than two weeks on expectations that warmer weather early next month in much of the central and eastern United States would curb demand.
Temperatures in the Midwest and Northeast are expected to be above normal from Saturday through Jan. 8, according to the National Weather Service's latest 6-to-10 day forecast. Higher temperatures signal reduced heating use and will probably extend a recent decline in gas futures, traders said. Prices fell 3.8 percent last week.
In New York, gas for February delivery fell 22.2 cents yesterday, or 4.4 percent, to $4.80 a million British thermal units, the lowest close since Dec. 11. Prices were still up 14 percent this month and 87 percent this year.
Venezuela Strife Pushes Crude Oil to $30