Oil up with OPEC summit in focus-- Analysts still expect cartel to stand pat on output quota
By Myra P. Saefong, <a href=cbs.marketwatch.com>CBS.MarketWatch.com Last Update: 3:42 PM ET June 10, 2003
SAN FRANCISCO (CBS.MW) -- Crude futures closed higher Tuesday, with traders unwilling to sell ahead of an expected decision on production levels from OPEC members gathering in Qatar.
The cartel's summit in Doha, Qatar, is expected to announce a decision on Wednesday. The current quota stands at 25.4 million barrels per day, excluding Iraq.
"There still seems to be some genuine suspense over what OPEC might do at tomorrow's summit meeting and prices are fluctuating accordingly," Tim Evans, a senior analyst at IFR Pegasus in New York, said in an afternoon update.
But Evans said he remains confident that with prices at current levels, "OPEC is not just unlikely to cut output, but is also unlikely to schedule a meeting before the next summit on Sept. 24."
With uncertainty weighing heavily on the oil market, crude for July delivery closed at $31.73 a barrel, up 28 cents on the New York Mercantile Exchange. It traded as low as $30.90 earlier in the session and rose to a high at $31.85 on Monday -- a level not seen since before the U.S.-led war in Iraq.
Belief that OPEC won't cut quotas Wednesday is growing, Joshua Sadler, vice president at the energy-trading desk of Societe Generale told clients in a note Tuesday.
"The current prices, which are at the top of OPEC's desired price range, low stocks and continued uncertainty as to the exact date and volumes of Iraqi [oil] all point to OPEC taking a pass," he said.
Indonesia, Venezuela and the United Arab Emirates are reportedly among the OPEC countries that don't expect a quota cut. OPEC President Abdullah al-Attiyah has said that while members will have to watch the return of Iraqi exports, they won't necessarily need to cut production.
Kuwait said it'll push for a cut, and Algeria has said current supplies are exceeding demand.
Even with these conflicting comments from OPEC members, most analysts predict that the cartel will leave its production quota unchanged and continue to monitor Iraq's exports. Read the OPEC preview story.
Dow Jones reported that an oil minister from the United Arab Emirates said Monday that while OPEC will likely decide to keep its output ceiling steady, it needs to cut back on quota cheating.
Supply data due
A distant second on traders' list of concerns is Wednesday's weekly updates on U.S. petroleum inventories from the Energy Department and American Petroleum Institute.
Tim Evans, a senior analyst at IFR Pegasus, is looking for a 1 million to 3 million barrel rise in crude inventories for the week ended June 6. Societe Generale's Sadler expects a 500,000-barrel climb.
Gasoline and distillate inventories likely climbed between 2 million and 3 million barrels, Evans said. But Sadler's looking for a rise of 1.4 million barrels for gasoline stockpiles and a climb of 1.6 million for distillate inventories.
In the most recent report, the Energy Department said motor gasoline inventories rose 2.3 million barrels for the week ended May 30. Crude and distillate inventories also climbed that week. See full story.
Gasoline prices climb
In other Nymex trading, gasoline futures closed with a more than 2 percent gain as news of refinery problems sparked supply concerns.
July unleaded gasoline rose by 2.06 cents to close at 91.7 cents a gallon. July heating oil closed up by 0.84 cent at 78.74 cents a gallon.
Thorsten Fischer, an energy economist at Economy.com said gasoline found support from news of problems at a Tesoro (TSO: news, chart, profile) refinery in California and two fires in Louisiana, one in Chalmette at the Exxon Mobil (XOM: news, chart, profile) refinery and one at the Murphy Oil (MUR: news, chart, profile) refinery in Meraux.
Natural gas gets noticed
Elsewhere on the energy front, representatives from the natural gas industry as well as consumer groups and analysts addressed the natural-gas supply situation at a hearing before the House Committee for Energy and Commerce on Tuesday.
Federal Reserve Chairman Alan Greenspan told Congress that industrial users of natural gas are feeling the pinch of the structural natural gas shortage in North America. See full story.
Richard Sharples, a senior vice president at Anadarko Petroleum (APC: news, chart, profile), also warned that the U.S. faces a "serious challenge with the growing gap between natural-gas supply and demand." Read a related archived story.
With supply concerns in the backdrop, natural gas for July delivery rose by 1.6 cents to close at $6.33 per million British thermal units -- well off the session's low of $6.23.
An update on U.S. natural-gas supplies in storage is due Thursday morning. Early estimates call for a rise of 110 billion cubic feet, but analysts at Fimat USA expect a 98 billion cubic foot climb. A year ago supplies rose 88 billion cubic feet.
Last week, the Energy Department said gas supplies rose by 114 billion cubic feet for the week ended May 30. But total supplies of 1.199 trillion cubic feet in storage are still 755 billion cubic feet less than they were a year ago.
In the equity arena, oil-service shares traded narrowly higher, as reflected by activity in the Philadelphia Oil Service Index ($OSX: news, chart, profile). See Energy Stocks.
Elsewhere, Nymex gold futures closed at their lowest level in a month. See Metals Stocks.
The Reuters/CRB Index, a broad-based measure tracking commodity futures prices, rose by 0.4 percent to 237.7. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.