WRAP:Nymex Drops As OPEC Output Hike Weighs On Sentiment

sg.biz.yahoo.com Monday January 13, 12:20 PM

SINGAPORE (Dow Jones)--Crude futures on New York Mercantile Exchange fell early Monday as after-hours Access trading commenced, in a knee-jerk reaction to news the Organization of Petroleum Exporting Countries will hike its output ceiling by 6.5% to stabilize jittery oil markets.

But crude futures subsequently managed to recover some of the earlier losses as participants realized the selling was overdone, and the size of the output hike was in line with what the market had been expecting.

But even though the OPEC output rise was within expectations, the news will continue to weigh on crude futures, participants say.

Select from the most reliable agencies  At 0410 GMT, the February Nymex contract was trading at US$31.56 a barrel, down 12 cents from Friday's floor trade close, after falling as much as 45 cents to US$31.23/bbl early in the session.

"Basically we sold off on the back of the OPEC news, and the general perception was that the market was overdone," said a Nymex broker, explaining the early losses in the session.

"But the market was expecting an increase of 1.5 million b/d, so there was no reason to sell off 50 cents at the open. The market overreacted to the headlines, because (an output hike of 1.5 million b/d) was already priced in," he added.

Most of the trading volume was from the U.S., with a total of 2,189 lots traded shortly before midday in Singapore.

"It could be that the U.S. (participants) are a little less aware of what's going on with OPEC ... and have pushed the market down. While in the Far East, Europe, (traders) have already priced it down," the broker said.

Range-Bound Trade Likely

For the rest of the Access trading session, Nymex crude futures will likely hold in a US$31.55-US$31.70/bbl, trending to slightly lower as news of the OPEC output hike puts a slight damper on market sentiment.

"Regardless of the fact that the market has already priced in (the 1.5 million b/d output hike), the news is going to cause a little bit of bearishness," the broker said, adding reports that Venezuela loaded a ship Friday also weighed on the market.

Good support will be provided at US$31.20/bbl, a consistent technical level "on the up and down swings over the last couple of weeks," the broker said. Beyond that, US$30.60/bbl will provide further support.

"At the moment we're in a little of a downtrend that's a week and a half old. To break out of that, we're looking at a move back up above US$32.40/bbl, and we have to get through US$32.60/bbl," he said. "But until we get through there, it's going to range trade and hover around current ranges."

On the London International Petroleum Exchange, Brent crude futures will also likely trend modestly lower. On Friday, nearby February Brent ended at US$29.67 a barrel, up 3 cents.

At its extraordinary meeting in Vienna Sunday, OPEC settled for a hike of its output ceiling by 1.5 million barrels a day to 24.5 million b/d, effective Feb. 1.

Oil prices have risen in recent weeks as the disruption to Venezuelan oil exports due to a prolonged strike in that country tightened supplies, notably to the key U.S. market.

Sunday's agreement was pushed through by Saudi Arabia, OPEC's largest exporter. Ali Naimi, the Saudi oil minister, said the supply shortfall resulting from the Venezuelan political crisis amounted to 2 million b/d.

He pledged that OPEC wouldn't allow an actual shortage of oil to develop.

The OPEC decision was swiftly followed up on Monday by the Saudis, who told South Korean costumers that in February they would supply more crude oil under their long-running term contracts than they had in January.

Saudi Arabian Oil Co. (C.SOI), or Saudi Aramco, made a 5% cut to February-loading term crude supplies to South Korea, compared with a much sharper 21%-22% cut for January's supplies, Seoul-based traders said Monday.

"The small cut means more term crude supplies given to us by Saudi Aramco, in line with OPEC's decision to increase output," a South Korean buyer said.

The same proportionate change is expected to apply to Saudi Arabia's February-loading term crude supply for Japan and Taiwan. Japanese markets are closed Monday.

-By Irene Kwek, Dow Jones Newswires; +65-64154062; irene.kwek@dowjones.com