Crude products fall on reported OPEC boost

Tuesday, January 7, 2003

(01-07) 15:57 PST (AP) -- Dow Jones News Service

NEW YORK (Dow Jones/AP) -- Crude oil futures tumbled again Tuesday as global oil producers moved toward increasing production to offset the loss of Venezuelan oil.

On the New York Mercantile Exchange, February crude oil futures hit a low of $30.51 a barrel, before closing at $31.08 a barrel, down $1.02.

February heating oil futures shed 3.91 cents to close at 84.88 cents a gallon, while February gasoline lost 4.02 cents to settle at 84.18 cents a gallon

On London's International Petroleum Exchange, February Brent dropped 87 cents to settle at $29.33 a barrel.

Natural gas for February delivery gained 19.2 cents to settle at $5.127 per 1,000 cubic feet.

The sell-off followed a flurry of news reports that the Organization of Petroleum Exporting Countries is planning a large supply increase to reverse the upsurge in prices caused by the six-week long strike in Venezuela.

Saudi Arabia, OPEC's most influential member, has proposed that the group raise output by 1.5 million barrels a day.

OPEC officials expressed hope that pledges for higher output from some non-OPEC producers such as Russia could lead to total output hike of 2 million barrels a day.

But non-OPEC Norway and Mexico, which have previously coordinated their output policies with OPEC, have said they can't increase this time around.

OPEC ministers plans to convene an emergency meeting Sunday in Vienna, Austria to discuss an output hike.

The increase would come as the price of OPEC's reference basket of crudes topped the $28 a barrel mark Monday, the 14th consecutive trading day above that level.

Under OPEC's price band mechanism, OPEC members are to increase output by 500,000 barrels a day if the price of the group's reference basket of crudes stays above $28 a barrel for 20 consecutive days. OPEC members have said they rely on the price band mechanism as a rough guide for adjusting output to keep prices within a range of $22 a barrel to $28 a barrel.

Indications that oil producers are already rushing extra barrels to the U.S. market also added to the bearish sentiment in the market, analysts said.

Preliminary figures from Lloyd's Marine Intelligence Unit indicated that about 25 very large crude carriers carrying a total of 7.3 million metric tons of oil are expected to discharge in the U.S. Gulf and the Caribbean in January.

At least another four very large crude carriers are expected to discharge in the same region in January which puts it at close to 9 million barrels, according to Andrew Lorimer of Lloyd's.

"The amount of oil being discharged in the U.S./Caribbean area in January is much higher compared with December," Lorimer said.

While the market greeted news of a possible OPEC output increase with a bout of selling, some analysts expressed skepticism over OPEC's ability to pull off a large output increase.

"Personally, I"m not sure they can produce an extra 2 million barrels a day," said Tom Bentz, an analyst at BNP Paribas. "Most members are producing at capacity."

Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, agreed.

"If the market wants to believe that OPEC is going to snap its finger and solve all its problems, it is wrong," Flynn said. "I don't think OPEC has the excess capacity to take for the loss of Venezuelan oil."