Andy - 2011, yes that's very key.

I have seen articles stating the poo will drop fiuther and then they go and talk about the recent big find in the GOM being an integral party of the imminent change down per barrel.

Makes me laugh!

New York Times - Published: September 25, 2006 - By HEATHER TIMMONS and CARTER DOUGHERTY

Oil Prices Fall as Speculators Retreat


LONDON, Crude oil prices traded below $60 a barrel today for the first time in six months, as speculators continued their retreat from the commodity markets, worried by cooling economies and an improving picture for oil supplies.

Today, the market reacted to news that Iran had agreed to hold talks about its nuclear program, and that the oil giant BP would resume pumping oil from Prudhoe Bay, Alaska, ahead of schedule. But analysts said the decline had as much or more to do with underlying economic factors, particularly slowing economic growth in the United States.

The benchmark price for a barrel of light, low-sulfur crude to be delivered in November traded as low as $59.52 a barrel on the New York Mercantile Exchange, before rallying in the last 90 minutes to reach $61.40 a barrel at the close of floor trading, a gain of 76 cents.

More broadly, oil prices have fallen 24 percent from their peak in July, when they were driven up on heavy speculation by traders and hedge funds over signs that geopolitical tensions and hurricanes would crimp supply. As it happened, few supply problems actually developed.

Where oil prices may be headed next is a matter of considerable debate among experts.

The oil markets fundamentals have finally asserted themselves, the Center for Global Energy Studies wrote today in a report. The upward momentum of oil prices disappeared, and it will therefore take a combination of special factors to bring it back, said the report by the center, which was founded by a former Saudi petroleum minister.

Other market watchers noted that prices for oil for future delivery, which some economists use for their planning purposes, have not fallen as much as spot prices, and that most futures contracts continue to hover around $66 a barrel.

The story is still very much the same for the futures market, said Eoin OCallaghan, an oil analyst with BNP Paribas. That points to more expensive oil in the coming months.

So-called noncommercial buyers, meaning hedge funds and investors rather than the producers and refiners who actually ship and use the oil, have poured money into energy and commodities markets in recent years, believing that growth in places like China, India and Brazil had put the world into a super cycle that would continue to drive up prices even if major industrial nations faltered. In recent weeks, many of the noncommercials have bailed out again as prices started to fall.

The members of the Organization of Petroleum Exporting Countries have been in telephone contact about the market trend but as yet they have no plans to convene an emergency meeting to address falling prices, an OPEC spokesman said today. The cartel last met on Sept. 11.

About 22,000 noncommercial buyers now hold long positions that is, bets that crude oil prices will rise according to the most recent report from the Commodity Futures Trading Corporation; in August the figure was 83,000. It is a huge reversal in position, said David Kirsch, an oil markets analyst with PFC Energy in Washington.

PFC noted in a report today that noncommercials have been reducing their long positions for five straight weeks, and have pushed prices below their 200-day moving average, a significant marker to technical analysts of the market.

Kamal Murari, global head of energy marketing for Dresdner Kleinwort, said: The move down that has taken place has been sharp and sudden. The fact that it has moved as significantly as it has means that any forced liquidation has been mostly priced into the market.

Many market participants think OPEC will act to stem the decline if prices fall to $55 a barrel, Mr. Murari said.

He suggested that some of the selling in the oil market may be linked to the recent well-publicized losses by some big investors in natural gas, which may have forced some funds to liquidate other energy assets.

For the consumer, retail fuel prices have fallen markedly in the United States, but less so in Europe, where excise taxes are much higher and crude accounts for a proportionally smaller part of the pump price.

For the larger economy, falling oil prices may do little now to counteract slowing growth on either side of the Atlantic, economists said.

It doesnt feed through that if the crude price falls below X, then economic growth will rise by Y, said Mike Wittner, an energy analyst at Calyon.

Daily Telegraph - Market report - By Simon Goodley - (Filed: 26/09/2006)


London's reliance on Big Oil and metals caused a gloomy session for traders, as the price of a barrel of crude dropped below $60, provoking investors to re-evaluate their positions.

BP, one of the FTSE's biggest losers on the day, dropped 10 to 563p, despite news that the company had moved to restore output at Prudhoe Bay earlier than expected. Rival Shell lost 19p to 17.40. Meanwhile Tullow Oil dropped 7 to 350p after the company said it had agreed to acquire Australian oil and gas company Hardman Resources, up 25 to 78p, in a deal worth $1.11bn (584m).

Mining stocks were also caught up in the fall as base metals slipped on growing nervousness about falling demand. Vedanta, which has been suffering problems at one of its projects in India, was the main casualty, down 81p to 11.12. Elsewhere in the sector Xstrata was off 23p to 20.36, BHP Billiton down 34 to 853p, Anglo American 74p cheaper at 20.60 and Rio Tinto down 55p to 23.52.

Oil and mining sectors account for around 40pc of the FTSE, meaning that the sell-off was particularly keenly felt in London, pushing the benchmark FTSE 100 down 24 points to 5798. The mid-cap FTSE 250 lost 28.2 to close on 9755.8, while in New York the Dow Jones was trading off about 15 points at 11492 as City traders went home.

"The FTSE has given up its support at 5820 and has remained the weakest index in Europe," said Angus Campbell, a market strategist at spread betting group Finspreads. "With so much of the rally in the past 18 months coming from high expectations of increased earnings for oil and mining companies, the reversal of crude and metal prices has really caused investors in these stocks to reconsider their positions. Our clients are becoming defensive, being largely short of the FTSE with the expectation that equity prices will fall further in the weeks ahead."

Traders added that the market has broken its two week downside - a worry considering we are approaching October, traditionally a weak month.

AFX - 27 September 2006

November crude settled up $1.95 at $62.96 a barrel after hitting an intraday high of $63.10 a barrel.

October heating oil settled up 5.63 cents to $1.7141 a gallon. October gasoline settled up 4.81 cents to $1.5399 a gallon.

October natural gas settled down 32.5 cents at $4.201 a million British thermal units.

Bloomberg - Sept. 27

Oil Rises the Most in Six Months as Speculators Buy Contracts - By Mark Shenk


Crude oil rose, climbing the most in six months, as speculators who had sold contracts in a bet that prices would fall bought them back.

Prices failed to drop below $60, prompting the purchases. Futures have declined 20 percent from a record $78.40 a barrel on July 14. Oil fell earlier today after the release of an Energy Department report showing that U.S. inventories of distillate fuel, a category that includes heating oil and diesel, and gasoline rose last week.

``The report was clearly bearish but when the market failed to break into new territory, sentiment shifted,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``Short-term traders look at failure to decline as a bullish signal.''

Crude oil for November delivery rose $1.95, or 3.2 percent, to close at $62.96 a barrel on the New York Mercantile Exchange, the highest since Sept. 18. Prices had the biggest single-session gain since March 23. Oil touched a six-month low of $59.52 on Sept. 25 in New York.

Supplies of distillate fuel jumped 2.62 million barrels to 151.3 million. The gain left stockpiles 18 percent above the five-year average for the month. Gasoline supplies rose 6.3 million barrels to 213.9 million.

Crude oil supplies slipped 109,000 barrels to 324.8 million last week, the report showed. A decline of 1.7 million barrels was expected, according to the median of 13 analysts surveyed by Bloomberg News. The drop left inventories 6.3 percent higher than the five-year average for the date.

The department released its weekly report on petroleum inventories at 10:30 a.m. in Washington.



Iranian Standoff

Iran will not surrender its ``inalienable'' right to develop nuclear technology, President Mahmoud Ahmadinejad said, as diplomats met to try and resolve the international dispute over the country's atomic program. Iran, the world's fourth-biggest oil producer, ignored the United Nations Security Council's Aug. 31 deadline to freeze uranium enrichment or face sanctions.

``Iran's path is quite clear, the nation's right is inalienable and Iranians will make optimum use of all capacities,'' the state-run Islamic Republic News Agency quoted Ahmadinejad as saying in a speech today in Tehran.

Iran's nuclear negotiator Ali Larijani was today meeting with European Union foreign policy chief Javier Solana in Berlin for talks. The discussions are aimed at breaking the deadlock over Iran's nuclear activities, which the U.S. and its allies suspect are cover for building a weapon.

``I don't think Ahmadinejad's speech is the primary reason for today's move higher because there's little new in what he's saying,'' said Michael Fitzpatrick, vice president for energy risk management at Fimat USA in New York. ``The main reason for this move is the failure to break through $60.''

Brent crude oil for November settlement rose $2.09, or 3.5 percent, to close at $62.21 a barrel on the London-based ICE Futures exchange.



OPEC Concern

Organization of Petroleum Exporting Countries' President Edmund Daukoru wants action to be taken to prevent a further decline in the crude oil price, Reuters said, citing an interview yesterday in Abuja, Nigeria.

``Something needs to be done to steady the price,'' Reuters reported Daukoru as saying. ``We are already talking among ourselves in the OPEC fold. The price is very low and it's not good for investors.''

OPEC agreed this month to leave its members' production targets unchanged. OPEC ministers will discuss quotas when they meet Dec. 14 in Abuja.

``The big question is where OPEC will decide to put in a floor,'' said Bill O'Grady, an analyst with AG Edwards & Sons in St. Louis.

The Times - September 28, 2006

Falling oil price a real boon but can Opec live with it? - James Harding


THE September surprise has been the fall in the oil price. Since mid-July, a barrel of light sweet crude has dropped by more than 20 per cent from just over $78 to nearly $60.

This is the most important business development so far this year, holding out the possibility of an altogether more benign environment for British trade and industry in 2007. The surge in fuel costs has in the past year accounted for more than a third (34 per cent) of the total rise in manufacturing industrys input prices, just less than a third (29 per cent) of the increase in inflation. The rule of thumb is that a 10 per cent increase in the price of oil knocks about 0.1 per cent off global economic growth. By implication, a 20 per cent fall could provide a boost to growth of at least 0.2 per cent.

Just as higher fuel prices have acted as a choke on investment and spending, the fall in the cost of energy promises to lift a burden on both businesses and consumers. Think of it as a tax cut, not from Chancellor Gordon but King Abdullah.

The mystery is that there has been little change to the fear factors that at the beginning of the summer pushed up the price of crude and prompted analysts to forecast Brent soaring past $100 a barrel. The reasons not to be cheerful remain: the Iranian nuclear threat has hardly disappeared; peace has not broken out in the Middle East; Iraq is hardly a safe haven for foreign investment; nor is Nigeria; Commandante Chez and Czar Putin continue their arbitrary rule over national energy assets; the Peak Oil doomsayers have not gone away. So, what has changed?

Market forces are, finally, exerting their power over feelings. A global surplus of supply of 500,000 barrels per day (bpd) in 2005 has risen to about one million bpd in the first half of this year, dispelling the fear premium that accounted for as much as 20 per cent of the recent spike in the price. Inventories are rising stockdays of crude have risen from 70 to 74 days cover. Oil refineries have been running flat out to satisfy summer petrol demand and have built up huge stocks. There is now a glut of heavier oil products, middle distillates and heating oil, which will depress the market this winter. At the same time, there are signs of a slight weakening of demand, particularly as growth falters in the United States.

Meanwhile, non-Opec supply is growing with estimates of about between one million and 1.8 million bpd of extra oil coming on stream in 2007, creating competition for Opec producers. The Centre for Global Energy Studies estimates that that high non-Opec growth could send the oil price falling below $50 per barrel by the third quarter of 2007.

That is, if Opec does not act. The future oil price is, once again, in the hands of the cartel. If the oil producers want to sustain the oil price even at todays level, they will have to cut their output sharply this winter. But they have to agree what price they wish to defend: $60 a barrel? $50? The problem for Opec is that many of its members have grown accustomed to the extraordinary revenue. Venezuela, Iran, Iraq and Nigeria cannot easily afford to cut output. Algeria and Libya may talk a lot about a cut, but do little. It will be left, chiefly, to Saudi Arabia. The question is whether the Saudis, given the economic and demographic strains inside the Kingdom, can afford a $50 million a day loss in income.

When it comes to natural gas, bless the weather. The Met Office has been forecasting a mild winter, notwithstanding the possibility of a cold snap in January. A warm Christmas, as well as a huge increase in supply, have sent UK forward gas prices for this winter tumbling from 88p per therm in April to 61p this week.

Last winters price spikes and the brief emergency declared by National Grid were due to supply bottlenecks and frustration by UK gas shippers to secure supplies on the Continent. This year, the expectation is that more gas will be available to offset the steady decline in UK North Sea output. This week Norsk Hydro sent the first gas through Langeled, a sub-sea pipeline linking Norwegian gasfields to England. The Norwegians are planning to ship every molecule of spare gas down the Langeled pipe this winter. Some gas analysts predict the winter 2006 price could fall to 50p per therm. (The falling natural gas price should help to bring down electricity prices.)

Company finance directors and spendthrift shoppers alike have reason to hope that energy prices will be more manageable in the coming year, a function of the market economy rather than global anxiety. Oil may not fall back to its post-World War II average of $25.56 per barrel. But the surge was exaggerrated by huge volumes of hedge fund speculation. That would suggest the price will not halt here.

FT - September 28 2006

Crude spikes higher on Opec rumours - By Chris Flood


Crude oil spiked by more than $1 on Thursday after Reuters reported that the Organisation of the Petroleum Exporting Countries had agreed an informal production cut. However, the Opec secretariat in Vienna later said it was unaware of any agreement.

Nymex November West Texas Intermediate hit $64 a barrel but retreated to trade $70 cents higher at $63.66 a barrel. ICE November Brent jumped to $63.63 a barrel before easing back to trade $1.04 higher at $63.25.

Saudi Arabia started to trim its production earlier this month and speculation has been growing in the market that the cartel will cut output. But Edmund Daukoru, Opecs president, said yesterday that even if Opec reached an agreement to cut ahead of the cartel December 14 meeting, it would be difficult logistically to lower supplies before November at the earliest.

The expected slowdown in the US economy next year will not be enough to substantially hurt commodity prices, according to Credit Suisse. It said the crude oil market and key metals (copper, zinc and nickel) would continue to face several years of supply deficit.

The deficits are too large to be deluged by a US economic slowdown, especially one which is consumption-led rather than industrially driven, said Jay Bhutani of Credit Suisse.

Natural gas prices were weaker after the release of the latest US weekly inventories data which showed a 77bn cubic feet increase in stocks, slightly below market expectations. The continuing inventory rise means gas in storage is on track to reach 3.3 trillion cubic feet by the end of October, ensuring plentiful supplies even if there is prolonged cold winter weather.

FT - September 29 2006

Hedge fund interest in commodities growing - By Kevin Morrison


Energy and metal prices have had a significant correction since they reached their record or long-term peaks earlier this year but talk of a prolonged downturn may be premature.

Barclays Capital said the 53-month upward trend in the Goldman Sachs Commodity Index had been broken, as institutional investor inflows into commodity product indices slowed. But it said hedge fund activity in commodities was still growing, as was private investor interest.

The fall in the oil price below $60 a barrel this week prompted talk that oil could be heading for the mid-$50s. Such gossip was enough to spur some ministers of the Organisation of the Petroleum Exporting Countries into action to bolster the sagging, but still relatively high, oil price.

Nigeria and Venezuela said on Friday that they would cut oil output by up to 170,000 barrels a day from Saturday, equivalent to about seven per cent of Opecs estimated production.

While other Opec members said they would not formally cut output, they have been quietly lowering production this year.

Saudi Arabia is estimated to have produced an average of about 9.1m b/d in September, down about 200,000 b/d from its August output, and about 400,000 b/d lower than the same period last year.

The announcement by Nigeria and Venezuela had little effect on prices as traders had factored in a cut, after comments by Edmund Daukoru, Nigerias energy minister and Opec president, that Nigeria would look to trim output.

ICE Brent crude futures for November delivery slipped 6 cents to $62.48 a barrel by the close.

Brent touched a six-month low of $59.32 during the week, and is down more than 20 per cent from its recent peak of $78.65, having suffered its biggest price fall for 15 years in the quarter.

November West Texas Intermediate fell 96 cents to $61.80 a barrel in morning trade on the New York Mercantile Exchange, but settled 15 cents up on the day at $62.91 a barrel. During the week it touched a six-month low of $59.52.

Traders said the move by Opec was a sign that it did not want oil prices to fall below $60 a barrel.

Petroleum product prices have also had a poor quarter, with Nymex gasoline futures down by a third on the quarter to $1.4750 a gallon, and US heating oil futures 17 per cent lower at $1.6675 a gallon.

US natural gas futures are down 36 per cent from the beginning of August, but only nine per cent on the quarter.

Bloomberg

Crude Oil Is Steady as Slower Economic Growth May Curb Fuel Use - By Mark Shenk


Crude oil was little changed as slowing economic growth in the U.S., the world's biggest energy consumer, may cut fuel demand.

Consumer spending in the U.S. rose 0.1 percent last month, the smallest gain since November, the Commerce Department said today. Yesterday, the department cut its estimate of the nation's second-quarter economic growth to an annual rate of 2.6 percent.

``The personal spending and GDP numbers are taking some support away from the market because they translate into slackening energy demand,'' said John Kilduff, vice president of risk management at Fimat USA in New York.

Futures have declined 20 percent from a record $78.40 a barrel on July 14 as tensions in the Middle East eased and U.S. fuel stockpiles increased.

Oct. 2 - Bloomberg

Oil Falls to $61.03 on Signs OPEC Cuts May Have Little Impact - By Mark Shenk


Crude oil plunged to $61.03 a barrel in New York on speculation that the decision by Venezuela and Nigeria to cut output will have little impact on supply.

Venezuela and Nigeria will reduce crude production by a combined 170,000 barrels a day, the Organization of Petroleum Exporting Countries said on Sept. 29. The countries were unable to produce as much as their OPEC quotas allowed in August. Saudi Arabia, OPEC's biggest producer, hasn't announced a cut. Rising fuel stockpiles and a slowing economy have also weighed on oil.

``These cuts may prove to be illusory,'' said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. ``The announcements are going to be taken with a grain of salt until the Saudis say they are going to cut, especially since they are voluntary.''

Crude oil for November delivery fell $1.88, or 3 percent, the biggest drop in almost two weeks, on the New York Mercantile Exchange. It was the lowest close since Sept. 26. Prices are down 7.9 percent from a year ago. Futures have declined 22 percent from a record $78.40 a barrel on July 14 as tensions in the Middle East eased and U.S. fuel stockpiles increased.

There is a global oil surplus of at least 500,000 barrels a day, Venezuelan Oil Minister Rafael Ramirez said in a statement Sept. 29 as he explained the country's decision to cut production. The country will reduce output by 50,000 barrels a day, and Nigeria will cut 120,000 barrels, OPEC spokesman Omar Farouk Ibrahim said.



Production Targets

Venezuela produced 2.5 million barrels a day in August, 723,000 barrels below the quota set by OPEC, according to a Bloomberg News survey. Nigerian output averaged 2.2 million barrels a day in August, 106,000 barrels less than allowed by the quota. The two nations were the fourth- and fifth-biggest sources of U.S. oil imports during the first seven months of the year.

``There is clear skepticism about the Nigerian and Venezuelan production cuts,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``We don't know if their statements are credible or if it would be sufficient to affect supply.''

Iran, OPEC's second-biggest oil producer, considers international oil prices too low and said it will support ``any'' OPEC measure that helps raise them. Iran produced 4.02 million barrels of oil a day in August, 90,000 barrels below its OPEC quota. Other OPEC members such as Saudi Arabia are exceeding their limits.



Iranian Support

``The Islamic Republic of Iran will support any effort by OPEC members to strengthen the oil market and return prices to an acceptable and rational level,'' Iran's OPEC Governor Hossein Kazempour Ardebili said, the state-run Islamic Republic News Agency IRNA reported today. Ardebili didn't specify whether Iran would change its current oil output to affect prices.

On Sept. 11, OPEC members agreed to leave their production targets unchanged at 28 million barrels a day. OPEC's next scheduled meeting is on Dec. 14 in Abuja, Nigeria. The group is responsible for about 40 percent of global oil output.

``Remember it's Venezuela and Nigeria that made the announcement, neither of whom has much credibility,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``The fundamentals look poor. Supply is there and the demand is not.''

U.S. inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, probably rose last week, according to a Bloomberg News survey. Crude oil, gasoline, heating oil, diesel and natural gas supplies in the week ended Sept. 22 were above the five-year average for the period, the Energy Department said.

``Inventories are really comfortable,'' Evans said. ``The accumulation on the product side is particularly important because that means the fuel is close to the consumer. There is less worry about a refinery or pipeline outage with these inventories.''

Brent crude oil for November settlement declined $2.03, or 3.3 percent, to close at $60.45 a barrel on the London-based ICE Futures exchange.

FT - October 3 2006

Oil falls as hurricane threat receeds - By Chris Flood


Crude oil sank below the $59 a barrel level on Tuesday, extending Mondays sharp falls amid growing confidence that this years hurricane season will end without a major storm.

Colorado State University, the leading academic forecasters, said on Tuesday that no more major hurricanes will form in the Atlantic this season.

Following hurricane Katrina last year, the US goverment sold 11m barrels of oil from its strategic stockpiles but it is to delay buying replacement supplies, making more crude available for refineries providing winter heating oil.

Ahead of the latest US weekly inventories data, due out on Wednesday, traders saw high existing levels of US crude and distillate stocks as reasons to drive oil prices to their lowest since February.

ICE November Brent traded $1.81 lower at $58.63 a barrel after it hit a low of $58.37. Nymex November West Texas sank to $58.84 before recovering to trade $1.83 lower at $59.20 a barrel.

The impact of Venezuela and Nigerias recent proposals to cut oil output by a total of 170,000 barrels a day was played down by analysts.

Mike Wittner, global head of energy market research at Calyon, said Nigeria and Venezuela were usually early advocates for production cuts but they had little usable spare capacity, so the burden would fall on Saudi Arabia, with some help from Kuwait and the UAE.

Saudi Arabia is rumoured to be trimming output already, reflected in lower tanker volumes in September, but it is likely to proceed cautiously ahead of the US mid-term elections, as energy prices have become a campaign issue.

A warm winter could potentially drive US crude prices temporarily below $50 a barrel, according to Francisco Blanch, commodity strategist at Merrill Lynch. With US and European distillate inventories already at high levels, a mild winter could reduce distillate demand by 245,000 barrels a day compared to normal. This would force heating oil prices lower and also have a knock-on impact on gasoline prices.

Opec may not be able to prevent a price collapse, as non-Opec crude producers are likely to be able to bring a significant amount of new capacity on stream, said Mr Blanch.

Nymex November heating oil fell almost 5 cents to $1.6550 a gallon, with distillate stocks expected to have risen 1.3m barrels last week. Nymex November unleaded gasoline fell just over 4 cents to $1.4650 a gallon, with stocks forecast to have risen by 0.9m barrels last week.

Gold fell 2.1 per cent to $592.70 a troy ounce as oils retreat put precious metals under pressure. Silver dropped 3.6 per cent to $11.05, while platinum sank 2.4 per cent to $1,120 a troy ounce.

Trading volumes for base metals were light due to holidays in China. Copper sank 2.4 per cent to $7,340 a tonne, while nickel fell 1.5 per cent to $28,800 a tonne.

Oil bounces back
Kuwait says it may follow OPEC members Venezuela and Nigeria in production cuts; inventories on tap.
October 4 2006: 9:25 AM EDT
LONDON (Reuters) -- Oil rose above $59 a barrel Wednesday after Kuwait said it may join other OPEC countries in cutting output if prices continue their three-month slide.

Kuwait's announcement offset expectations for a further rise in U.S. distillate and gasoline stockpiles, which helped prices dip to an eight-month low earlier in the session.

U.S. crude climbed 36 cents to $59.04. London Brent rose 42 cents to $58.91, after hitting this year's low of $57.78 earlier in the session.

Oil's 25 percent drop from its mid-July peak of $78.40 prompted OPEC President Edmund Daukoru on Tuesday to call on other OPEC members to follow the lead set by Nigeria and Venezuela in cutting exports.

But an OPEC source said Wednesday that other producers were unlikely yet to publicly pledge to trim supplies.

Kuwait's oil minister said it may take action if prices fall further below $60 a barrel.

"Kuwait may voluntarily lower (oil output) in order to maintain the market's stability," Sheikh Ali al-Jarrah al-Sabah told Reuters in an interview.

"The current situation with prices and the big retreat that has taken place is uncomfortable for OPEC nations," he added.

Pressed on price, he said $60 a barrel for U.S. crude was comfortable but $50 was worrying.

Venezuelan President Hugo Chavez said the price of oil should not fall below $60 a barrel, while the country's energy minister said markets were oversupplied by 500,000 barrels.

"What's frightened OPEC is the speed of the price decline - and it's easy to rationalize because stocks are high. There is definite cause for concern," said energy consultant Geoff Pyne.

"But oil at $60 is still high in absolute terms, so it's a difficult political decision for some producers to cut supply - especially Saudi Arabia."

Brimming U.S. stockpiles
U.S. data, set for release at 10:30 a.m. ET, are expected to show a 1.5 million barrel build in distillate stocks, according to a Reuters poll of analysts.

If the forecast holds, distillates such as heating oil will have risen for the past two months.

Gasoline supplies are seen up 700,000 barrels, while crude stockpiles are expected to fall 500,000 barrels.

Japan, the world's third-largest energy consumer, also has healthy heating oil stocks, which are at the highest level since last November.

"Inventories are huge - sentiment is completely bearish," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

But given a risk of further supply disruptions and higher winter demand, some analysts expect a rebound.

"I would think anything below $60 is a buying opportunity so on a technical perspective, prices would see a rebound soon," said Gerard Burg, a commodities analyst at the National Australia Bank.

Oil price forecasts raised for 2007 on rising demand

Wednesday, October 04, 2006

Oil analysts are raising their price estimates for next year in anticipation of increased demand that may outpace the development of new deposits.
Crude oil will average US$64 a barrel in New York in 2007, according to the median forecast of 29 analysts surveyed last week.

That is US$2 (HK$15.60) higher than predicted at the end of the second quarter. Analysts failed to predict the rise in oil throughout a five-year rally during which prices tripled.

"We see a very tight market continuing into next year," said Kevin Norrish, a director of commodities research for Barclays Capital in London. Barclays expects oil next year to average US$76.70 a barrel, the highest forecast in the survey.

"The recent fall in prices is due to short-term factors," he said. "We're looking for fairly strong global growth, and we don't see capacity expanding by much."

Benchmark oil futures touched a record US$78.40 a barrel July 14 on the New York Mercantile Exchange on concern that fighting between Israel and Hezbollah in Lebanon would spread through the Middle East.

Prices fell after fighting ended in Lebanon and the Gulf of Mexico storm season passed without a repeat of last year's hurricanes, which crippled oil production and refineries.

Oil's climb from less than US$20 a barrel at the end of 2001 has been driven by the failure of producers to generate new supplies fast enough to keep pace with rising demand, especially in China.

Analysts are betting that trend will continue. They forecast oil would be US$58 a barrel at the start of 2006, according to the median in a survey last December. So far, crude oil has averaged US$68.26, higher than any prior year.

"We just haven't seen dramatic increases in supply," said James Rollyson, an analyst at Raymond James Financial in Houston. Raymond James is predicting US$70 oil next year after forecasting US$58 at the beginning of this year.

Oil consumption worldwide rose 9percent to an average 83.8 million barrels a day between 2000 and 2005, led by China and the United States, according to the US Energy Department. Global oil supply rose 8.6 percent to 84.5 million barrels.

Prices surged during the first half as Iran, the fourth-largest oil producer, pushed ahead with nuclear fuel enrichment, heightening tensions with the US.

Talks in Berlin between Iran and European Union officials aimed at breaking the deadlock over the atomic program produced some progress.

Oil will average US$65.50 a barrel in the fourth quarter, according to the median estimate in the survey.

Analysts in June said oil would average US$67.65 a barrel during the third quarter. Prices averaged US$70.60 during the past three months, a record.

Strategists who forecast a drop in prices next year say a slowing US economy will coincide with increased output.

US economic growth slowed to a 2.6 percent pace in the second quarter, three percentage points lower than the first three months of the year, the Commerce Department said on September 28.

"We're very pessimistic about the US and global economy next year," said Eoin O'Callaghan, an analyst with BNP Paribas in London who expects oil to average US$59.80 next year.

Rising fuel stockpiles in the US, which is responsible for 25 percent of global energy use, helped cause the decline in prices in the third quarter.

Spot prices are cheaper than futures for oil delivered later in the year, a market condition called "contango."

This has led to increased inventories, but it may end in coming months, said Adam Sieminski, chief energy economist at Deutsche Bank Securities AG in New York. He expects oil to average US$61 a barrel in 2007.

BLOOMBERG

FT - October 4 2006

Oil struggles to recover from recent weakness - By Chris Flood


Oil markets struggled to stabilise on Wednesday as news of a bigger-than-expected increase in US crude inventories offset a threat by Kuwait to join other members of the Organisation of the Petroleum Exporting countries in cutting output if crude prices weakened further.

Sheikh Ali al-Jarrah al-Sabah, Kuwaits new oil minister, said crude production could be reduced to maintain market stability and that the country was in negotiations with other Opec members about voluntary cuts in output.

Kuwait is the first Gulf state to move but Saudi Arabia raised its official selling price for November crude for delivery to Europe by more than $1 a barrel yesterday which is expected to reduce shipments further.

Momentum in favour of action among Opecs members is growing following Nigeria and Venezuelas recent moves to cut production by a total of 170,000 barrels a day.

After a decline of more than $4 a barrel in the previous two sessions, crude prices remained choppy with the release of the latest weekly US inventories data. Crude stocks rose 3.3m barrels, well above the consensus market forecast for a 0.5m barrel decline. Nymex November West Texas Intermediate fell to as low as $57.75 a barrel before recovering to trade 4 cents higher at $58.72 as barrel.

ICE November Brent sank to $57.70 a barrel, its lowest level this year, before recovering to trade 14 cents higher at $58.57 a barrel.

Nymex November heating oil edged up 1 cent to $1.6640 a gallon after distillate stocks rose 200,000 barrels compared with the consensus forecast for a 1.5m barrel increase.

Nymex unleaded gasoline firmed 1 cents at $1.4714 a gallon after a rise of 1.2m barrels in gasoline stocks compared with the consensus market forecast for a 0.7m barrel increase.

Source: Globe and Mail - 4 October 2006

Commodity bear market begins now: Merrill


Commodity prices are due for a "protracted bear market" after speculators drove prices artificially high in recent months, Merrill Lynch & Co.'s chief investment strategist said Wednesday.

"We commented early last month that the level of speculation in commodities was at an all-time high," said Richard Bernstein in a report. "Despite September's pullback in overall commodity prices, the level of speculation has actually risen!"

Merrill was not the only brokerage betting that the commodity space is getting riskier. An RBC Dominion Securities analyst turned bearish on the Canadian oil field services sector Wednesday, urging investors to view companies working in the field with caution, given the sharp drop in natural gas prices.

"In light of further risks to gas prices, exploration and production spending, and pressures on service pricing and margins created by potentially lower activity levels and more capacity, defensiveness and caution should continue to be the main theme over the next 6-9 months," RBC's Angela Guo wrote in a note.

Merrill's Mr. Bernstein measured the level of speculation in the market by comparing spot prices of commodities that trade exchange-listed futures with spot prices of commodities that do not. He believes that speculation is more likely to occur in the futures markets than in the physical markets.

"By our reckoning, commodities' prices are now about 60 per cent above what could be explained by fundamental supply and demand," the Merrill report said.

Its research suggests that September's drop in commodity prices might "only be the beginning" of a long-term drop in prices.

"We find it amusing that a consensus has now formed that housing is speculative and overdue for an extended pullback, yet many commodities have appreciated much more than housing has, and have done so in a shorter period of time," Mr. Bernstein said.

"Housing is speculative, but commodities are purely a fundamental story? We disagree."

The report comes a day after Merrill's U.S. sector strategist Brian Belski downgraded the U.S. energy sector to "underweight." He predicted the energy sector will underperform the stock market over the coming months.

RBC took a closer look at investing in the companies that provide products and services for the major oil and natural gas companies. The sector has provided another way for investors to profit from the boom in the resource sector.

But the price of natural gas the most common U.S. home heating fuel has dropped nearly 25 per cent since August 1 to its lowest level in nearly two years as North American inventories swelled on the extended warm weather. The drop in natural gas has forced some companies such as Canadian Natural Resources Ltd. to slash their natural-gas drilling plans.

RBC's Ms. Guo said a new look at the risk-reward profile of companies in the oil-field services sector triggered wide-spread downgrades in the sector.

Akita Drilling Ltd., Trinidad Energy Trust, Mullen Group Income Fund, Pason Systems Inc., CHC Helicopter Corp., and Flint Energy Services Ltd. were all downgraded to 'underperform.' Ensign Energy Services Inc., Precision Drilling Trust, Calfrac Well Services Ltd., Trican Well Service Ltd., Cathedral Energy Services Income Trust, and Total Energy Services were all cut to 'sector perform.'

Although the sector looks cheap now, there is no compelling reason to pick up the stocks, Ms. Guo said, nothing that a lack of near-term positive catalysts and continued uncertainty on earnings estimates will likely keep the sector depressed.

"As a dramatic measure of maximum risks should the oil price fall significantly due to macro economic reasons, while the gas price dips further due to a warm winter, applying the historical trough trailing multiples to the stocks would imply an average downside of 24 per cent for the sector from current levels."

Ms. Guo left her 'outperform' recommendations on Savanna Energy Services Corp., Enerflex Systems Ltd., CCS Income Trust and ShawCor Ltd., saying the stocks were already either oversold or more defensive in nature.

The last four companies have a more "favourable" relative risk-reward profiles when compared with the rest of their peer group and could be purchased by "value-oriented investors seeking exposures to the sector," she said.

Market report: Wednesday close
Mickey Clark, Evening Standard
4 October 2006


As crude prices briefly slumped to their lowest of the year, one long-term bull, UBS, appeared to be taking a more cautious stance on prospects. The broker has downgraded Tullow Oil, 9p lower at 358p, from neutral to reduce while slashing its target price from 375p to 330p.

Burren Energy, 15p off at 818p, remains a buy but has seen its target cut from 1065p to 1030p, along with Cairn Energy, down 61p at 1775p, which UBS has trimmed from 2600p to 2450p.

Venture Production, down 19p at 703p, which recently benefited from news of a new drilling campaign in the North Sea, remains a buy with its target increased from 1010p to 1040p.

UBS has also begun coverage of Premier Oil, 7p cheaper at 1010p, with a buy rating and a 1300p target while Dana Petroleum, 44p lower at 1126p, is rated at neutral with a 1240p target. UBS says Dana and Tullow have strong reserves of oil, but warns this is already factored in to their share prices.

BP bounced back to trade 1p higher at 570p after initially being marked lower following a disappointing trading update. That spike in BP, which has a big weighting in the Footsie 100 index, enabled the rest of the market to rally from opening falls.

The Times - October 05, 2006

Opec plans cuts


Opec, the oil cartel, has agreed informally that it needs to cut production by at least one million barrels a day, or 4 per cent, to boost the falling price of oil. Most cartel members back a voluntary reduction and the deal could be ratified as early as the groups mid-December meeting in Abuja, Nigeria. Opec is going to defend a price floor for its oil of $50-$55 a barrel, one Opec official said.

Bloomberg - Oct. 6

Oil Falls on Speculation Saudi Hasn't Agreed to Any Output Cut - By Hector Forster


Crude oil fell on speculation Saudi Arabia, the world's largest producer, hasn't agreed to participate in any output cut by the Organization of Petroleum Exporting Countries.

OPEC President Edmund Daukoru said yesterday there is no formal agreement among member countries to lower output. This week, he urged members to lower production before the group's next scheduled meeting in December, and started the process with a cut from his own country, Nigeria.

``Saudi Arabia seems not to agree on any cutback plan until oil falls below $55,'' said Makoto Takeda, an energy analyst at Bansei Securities Co. in Tokyo. ``Prices are likely to turn downward and test Wednesday's low. We haven't found a bottom yet.''

Crude oil for November delivery fell as much as 43 cents, or 0.7 percent, to $59.60 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $59.74 at 12:53 p.m. Singapore time.

Prices declined to $57.75 a barrel on Oct. 4, the lowest in more than seven months.

Crude oil may rise next week on speculation a growing number of OPEC members favor cutting production to bolster prices. Fifteen of 34 analysts, traders and brokers, or 44 percent, said prices will gain next week, according to a Bloomberg News survey.

Brent crude oil for November settlement dropped as much as 27 cents, or 0.5 percent, to $59.73 a barrel on the London-based ICE Futures exchange.



OPEC Output

Nigeria and Venezuela said last week they will cut output by a combined 170,000 barrels a day.

``The consensus that we can all agree on is that the market is very soft,'' Daukoru said by telephone from Abuja, Nigeria. ``It's more or less a free fall.''

OPEC, which may meet this month to debate a cut, may slash production by at least 1 million barrels a day, Algeria's state- owned news agency said yesterday. OPEC will hold an emergency two-day meeting starting Oct. 18 at its headquarters in Vienna, Algiers-based Algerie Presse Service said.

``I do not think they were ready for prices to fall as fast and as far as they actually had,'' said Jonathan Barratt, a founder of Sydney-based Commodity Broking Services. He predicts prices to rise as high as $68 in winter before retreating to the $50-a-barrel level.



Commodity Prices

September's decline in oil and other commodity prices may be the start of a ``protracted bear market'' after speculation by investors pushed prices too high, Merrill Lynch & Co. said.

Speculation has lifted prices 60 percent higher than they should be, given supply and demand levels, Richard Bernstein, Merrill's chief investment strategist in New York, said in an Oct. 3 report.

Morgan Stanley, the world's biggest securities firm by market value, said yesterday the commodities ``supercycle'' isn't over and prices may rise because of production shortages next year.

Global commodity supplies, which are three to five years behind demand, may test record lows in 2007, the New York-based bank wrote in a report yesterday.

``The next leg upward in the commodities cycle'' will happen in the next six to 12 months, it said.