|
Crude dips to 12-year low
|
 |
November 18, 1998: 4:50 p.m. ET
On average, oil prices running lower than at any time since 1976
|
NEW YORK (CNNfn) - World oil prices slumped to a 12-year low Wednesday amid widespread belief the Organization of Petroleum Exporting Countries will offer few solutions to a deepening oil market crisis.
In London, benchmark Brent crude oil futures tumbled to $11.15 a barrel before recovering to $11.50. In New York, crude futures closed at $12.14 a barrel, down 31 cents, after hitting a low for the day of $11.65.
Oil has not been as low since the depths of the 1986 price crash when Brent slipped below $9 a barrel. On average this year, at $13.70, crude oil prices are running lower than at any time since 1976.
Industry experts attributed the sharp decline to a variety of factors, including a worldwide supply glut, end of year inventory issues, the upcoming OPEC meeting and above normal temperatures in the United States.
Liam Dalton of Axiom Capital Management told CNNfn oil stocks were no longer on his buy list, noting that there was not much encouraging news to counter the industry's "scary decline" in the past two years. [193K WAV] or [193K AIFF]
Taxing issues
Bill O'Grady, an oil analyst at A.G. Edwards, said one reason there are fewer buyers in the market right now is oil companies are trying to reduce their inventories to avoid huge end-of-the year tax issues. Typically, oil inventories are taxed on an annual basis, so refiners and storage firms try to end the year with the lowest inventories possible.
"Right now there is no incentive to buy oil because of the glut," he said. "This will take some time to work through the market. That's why we see the December (crude oil futures) contract down about 50 cents and the February contract down only 15 cents."
Lower oil prices are generally good for consumers because they keep inflation in check and result in cheaper gasoline and heating oil bills. On Monday, the government said retail gasoline prices are now at 99.6 cents a gallon, the first time prices have been below $1 a gallon in almost five years.
However, lower prices are bad news for the oil industry. Over the last two weeks, a number of leading oil companies have announced plans to scale back spending and slash their payrolls to reduce costs.
OPEC meeting not promising
Another factor weighing on the market is next week's OPEC conference in Vienna, which is not expected to result in fresh production cuts.
"If the expectation is to cut more, maybe it is too much for OPEC to handle that," Sayed Mehdi Hosseini, Iran's deputy oil minister for international affairs told the annual Oil and Money conference in London on Wednesday.
"At present additional output curtailment by producers does not appear feasible," added Adrian Lajous, the head of Mexico's state oil company Petroleos Mexicanos on Wednesday.
Non-OPEC Mexico played a crucial role earlier this year in helping orchestrate with OPEC two rounds of output cuts taking some three million barrels a day of supply from the market.
"Facing a massive stock overhang and weak demand there is not much more OPEC can do these days," said London's Center for Global Energy Studies.
OPEC has watched its efforts this year to rescue the market ruined by a towering stockpile of crude and petroleum products and failing demand, in particular from Asian consumers.
Having already cut supplies 10 percent and made no impact on prices, oil producers are in poor shape to take further action.
Some OPEC countries like Kuwait want immediate further output cuts. But a meeting of ministers on the fringes of a conference in Cape Town two weeks ago signaled only the likely extension to the end of 1999 of reductions to which they've already agreed.
Influential producers such as Saudi Arabia have been careful in recent weeks not to raise any hopes of more cuts.
"If you can't fix it, don't make it worse," said the senior Gulf OPEC official.
"Under these conditions a rollover seems to be the preferred option," added Pemex's Lajous.
Industry monitors say OPEC is close to its stated aim of removing 2.6 million barrels a day. But familiar cracks have appeared in recent weeks as member countries point the finger of blame at those allegedly not meeting pledged supply cuts.
"Maybe we can look at it again in March. But first we need to see total compliance delivered on what's already been agreed," said the Gulf official.
December presidential elections in Venezuela mean Caracas would appear unable to consider any further action.
Mexico on Wednesday added its warning to those producers that might be tempted to infringe output curbs.
"The continued support of Mexico to the management of global supply is conditional to effective compliance by other major producers and to the stability of market shares in our main export markets," Lajous said.
Oil traders see no relief for a market where the stubborn stockpile still blocks the road to recovery.
"There is no fundamental reason to buy this market at the moment," said Darren Gurner at trading house Sucden.
OPEC's Vienna secretariat said on Tuesday that world oil stocks on the 75 million barrels daily market had built by more than two million bpd in the first nine months of this year after a 1.1 million bpd stockbuild in 1997. 
|
|
|
|
|
 |
|
