Brent Crude Drops to 2-Month Low on Rising OPEC, Norway Supply

Articles: Brent Crude Drops to 2-Month Low on Rising OPEC, Norway Supply

Posted by admin on Monday, June 28, 2004 - 04:48 AM

Crude oil futures slumped to a two- month low in London as a rise in exports from Iraq and Norway added to higher output from the Organization of Petroleum Exporting Countries that is expected to meet surging U.S. and Chinese demand.
Iraq, which regained sovereignty from the U.S.-led coalition today, restored exports through Persian Gulf terminals Saturday. Statoil ASA and ConocoPhillips said Norway's oil output returned to normal after the government Friday halted a strike that cut more than 10 percent of output from the world's third-largest exporter. ``Norwegian fields are operating normally and OPEC is increasing its exports as much as promised,'' said Rob Laughlin, a trader with GNI Ltd. in London. ``This is shown not only by words, but also by facts, looking at ship chartering.'' Oil tanker rates for shipping Middle East crude on benchmark routes to Asia are more than double the level they were a year ago as rising OPEC output boosts demand for vessels. Brent crude for August settlement fell as much as 69 cents, or 2 percent, to $34.28 a barrel on London's International Petroleum Exchange. It slid 56 cents to $34.41 at 11:48 a.m. local time. On the New York Mercantile Exchange, crude for August delivery declined 1.7 percent to $36.92 a barrel. ``We are in a downtrend because of what OPEC has done to make sure prices don't run away,'' said William Buchanan, a senior energy trader at Standard Bank in London. ``Everybody checks that nothing horrible happens over the weekend and then sells on Monday.'' Sporadic weekend attacks on oil infrastructure in Iraq and foreign oil workers in Saudi Arabia in the past two months have caused prices to rally as trading resumes Monday. Daily Attacks Iraq, which holds the world's third-largest oil reserves according to BP Plc, has suffered almost daily attacks against security forces or oil infrastructure, including sabotage to pipelines that halted exports earlier this month. Iraqi Foreign Minister Hoshyar Zebari said today's handover of sovereignty two days earlier than planned, ending 15 months of occupation, showed Prime Minister Ayad Allawi's government is ready to fight armed opponents of the U.S.-led coalition and the new administration. ``Everybody should be reasonably happy that Iraq now has control over its own oil,'' said Simon Wardell, an analyst at World Markets Research Centre in London. ``The lack of any recent attacks in Iraq and Saudi Arabia eases the security premium in prices.'' Oil exports through Iraq's Basra and Khor al-Amaya terminals returned to about 1.68 million barrels a day after pipeline repairs were completed, Moayd Hashim, the harbor master at the Basra oil terminal, said Saturday. Exports were halted on June 15 after attacks on two pipelines supplying the terminals. Prices Inflated OPEC oil ministers said June 3 at a meeting in Beirut that oil prices were inflated as much as $10 a barrel because of security concerns in the Middle East. New York oil prices have dropped 13 percent since closing at a record $42.33 on June 1. Last week they fell 3.7 percent, their biggest weekly drop in three months. OPEC in Beirut agreed to increase its output quota by 2 million barrels a day on July 1 to 25.5 million barrels, adding another 500,000 barrels a day a month later. It also pledged to pump more oil to lower prices. ``It appears there's enough production to meet rising demand,'' WMRC's Wardell said. ``With this balance, we will perhaps see a further decline in prices.'' In the first 24 weeks of this year, U.S. crude oil inventories have only failed to rise in 7 weeks, according to U.S. Energy Department statistics. At 305.4 million barrels, stockpiles were 7.5 higher on June 18 than a year earlier. Concern of gasoline shortages in the U.S. as summer demand peaks had sent prices to the all-time highs earlier this month. Rising Consumption Oil consumption may climb the most since 1980 this year, led by surging use in the U.S. and China, the top two consumers, the International Energy Agency said earlier this month. Norway's government on Friday ordered an end to a week-old strike. Norway supplied 6.715 million barrels, or 2.2 percent, of the crude imported by the U.S. in March, according to the Energy Department in Washington. The strike shaved more than 370,000 barrels a day off Norway's normal 3 million-barrel-a-day oil production last week. In Iraq, the restoration of sovereignty may increase the likelihood that saboteurs disrupt Iraqi supplies, analysts and traders said. The handover of power by the U.S.-led Coalition Provisional Authority ``won't make much of a difference,'' WMRC's Wardell said. ``If anything, it adds more anxiety. There are still concerns about security and of future attacks against pipelines. It's so symbolic that there is even a greater risk.'' ``Term customers are reluctant to commit themselves to buy Iraqi oil'' because of security concerns, GNI's Laughlin said.

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