Oil prices fall again as supplies begin to flow through

By Carola Hoyos in New York Published: January 9 2003 4:00 | Last Updated: January 9 2003 4:00

Additional crude oil is already reaching markets affected by the shortfall in Venezuelan supplies, storage data revealed yesterday.

The news sent world oil prices lower for a third straight day this week and prompted some analysts to predict that the Opec oil cartel would raise its 23m barrel-per-day output ceiling in line with current production at this Sunday's meeting in Vienna, rather than substantially increase production.

"Output is already there, that's what the inventory data is telling us. Opec is going to confirm what has already taken place," said Adam Sieminski, analyst at Deutsche Bank. "The market is now balanced and the loss of Venezuela has been made up."

Crude oil imports into the US rose 658,000 barrels to 8.3m b/d, according to Department of Energy statistics. The department does not furnish data breaking down by country weekly US imports, but some analysts speculated that Saudi Arabia may have tapped into its crude storage in the Cari-bbean.

Benchmark crude oil prices in London and in New York, yesterday fell to less than $30 a barrel, which could push Opec's crude oil basket below $28 a barrel - within its $22-$28 target band - for the first time in more than two weeks.

At midday the Nymex February contract price had recovered slightly and was trading at $30.35, down 73c, while London's IPE Brent contract traded at $28.37, down 96c, in reaction to the bearish inventory data.

The US Department of Energy said the country's crude stocks rose 400,000 barrels to 278.7m barrels for the week to January 3, defying expectations of a 5m-6m barrel reduction.

Despite the unexpected data, analysts warned that storage levels remained at historic lows and that the possibility of a war with Iraq meant that prices were unlikely to fall much more than to the middle of Opec's $22-$28 range.

Nevertheless, some more bearish market observers warned that Opec could not forget about the underlying seasonal drop in demand for crude oil expected in the first two quarters of the year.

Opec yesterday confirmed that it would hold an emergency meeting on Sunday in Vienna.

Sheikh Ahmed, Kuwait's oil minister, said yesterday that Kuwait supported a rise in Opec production of about 1m b/d, warning that his country was unlikely to be able to increase its production because of ongoing industry repairs.

"Increasing production by 1m b/d is reasonable and enough to stabilise the oil market," he said.

Non-Opec producers, such as Russia and Norway, have also said that they are already producing at close to maximum capacity.

Saudi Arabia, Opec's biggest producer, and Qatar, the group's president this year, want to agree an increase of at least 1.5m, but much of this may already be reaching consumers, analysts said.

Opec promised to reduce its production at its last meeting in December, but traders say those cuts were never fully implemented because of the growing realisation that the Venezuelan strike would not be resolved quickly.

"I don't think they ever cut," Mr Sieminski said.

In Washington, a State Department official said that a substantial increase in Opec output would be "a positive development".