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.

dai oldenrich, like the thread and the metals one. Thanks.

Thanks Eddie. I only post factual up-to-date articles as you can read a wide range of differing opinions on many BBs. Glad they are helpful. Dai.

FT.COM - October 6 2006

Crude lower, commodity weakness continues - By Kevin Morrison


Oil prices fell about 5 per cent this week in spite of planned production cuts by the Organisation of the Petroleum Exporting Countries and the prospect of sanctions against Iran, Opecs second largest producer, by the US.

Prices remained weak in afternoon trade on Friday even after the US said there might be an announcement next week to discuss possible sanctions against Iran over its nuclear ambitions.

Edmund Daukoru, Opec president, said on Friday that he hoped the oil cartel could reach a consensus on Monday on a planned production cut of 1m barrels a day.

Some Opec members have already starting trimming supplies. Saudi Arabia, the worlds largest oil exporter, has cut output by 200,000 barrels a day over recent months.

ICE Brent for November delivery retreated 74 cents to $59.26 a barrel in late afternoon London trade. This left prices down about 5 per cent on the week, and almost 25 per cent below their peak of $78.60 a barrel touched in early August.

November West Texas Intermediate fell 76 cents to $59.27 a barrel on the New York Mercantile Exchange, leaving it down almost 6 per cent on the week.

Kevin Norrish, energy analyst at Barclays Capital, said the oil price had continued to slide because the market was confused by the Opec announcements, which had so far mainly come from the Opec president rather than the secretariat.

The fact that Opec wants to make cuts at this juncture implies that Opec wants a basket price of about $60 to $62, which means about $65 to $67 for WTI, and this is positive for fundamentals, said Mr Norrish.

UK spot gas prices recovered to 12.25p per therm after dropping into negative territory in the week after gas started flowing from the new Langeled pipeline in Norway.

The drop in oil prices has been mirrored by a slide in gold prices. Bullion fell $1.85 to $567.00/$567.75 a troy ounce on Friday, down 5.2 per cent on the week and 22.3 per cent below its 26-year peak of $730 in May.

Oil has become a key barometer of inflation expectations and gold is also an indicator of inflation expectations, so it is no great surprise that there is a relationship between the two. It is a surprise that golds relationship with oil is stronger at the moment than the dollar-gold relationship, said Robin Bhar, metals strategist at UBS.

The weakening dollar provided no support to gold, but gold found support when oil prices rose briefly this week after the initial Opec announcement, said Mr Bhar.

Reuters - Fri Oct 6, 2006 11:59 PM - By Vivianne Rodrigues


A rally in U.S. stocks that pushed the Dow industrials to a record may stall next week as signs of an economic slowdown curb the appetite for equities just as the third quarter's earnings season gets under way.

This week, the blue-chip Dow Jones industrial average hit a record closing high and an all-time intraday high for three days in a row in a rally driven by a sharp drop in oil prices and expectations that the Federal Reserve will not raise interest rates in the near future.

The rally also propelled the Standard & Poor's 500 Index to fresh 5-1/2-year highs more than once.

But on Friday, weaker-than-expected September employment data, following a White House forecast for slower GDP growth late on Thursday, brought the rally to a halt and may drag stocks lower in the week ahead, analysts said.

"We had a long run in equities and we're probably due for a sell no matter what the news is," said Elliot Spar, market strategist at Ryan Beck & Co., in Shrewsbury, New Jersey. "If the economy is going to go down, then you have to worry about earnings momentum."

Investors will scrutinize corporate profits next week, Spar said, as the earnings season heats up, with Alcoa Inc., Costco Wholesale Corp. PepsiCo Inc. and General Electric Co., slated to report.

Trading may be lighter than usual on Monday as the U.S. bond market will be closed in observance of the Columbus Day holiday. The U.S. stock market will remain open.


BEWARE OF THE JINX MONTH

For the week, stocks rose -- with the Dow up 1.5 percent, the S&P 500 up 1 percent and the Nasdaq up 1.8 percent.

The Dow average closed at record highs three times in the week, with an intraday high on Thursday at 11,870.06, its highest level since Jan. 14, 2000. On Thursday, the S&P 500 closed at 1,353.22 and peaked intraday at 1,353.79 -- with those levels marking the highest since Feb. 5, 2001.

For the year to date, the Dow is up 10.6 percent, the S&P 500 is up 8.1 percent and the Nasdaq is up 4.3 percent.

After stocks broke new ground last week, some investors may be more cautious during the rest of October, known as "the jinx month," according to the Stock Trader's Almanac, because of stock market crashes in 1929 and 1987.

Volatility may increase early this week, traders said, with the possibility of a nuclear weapon test by North Korea over the weekend.

"If they do go ahead with the test, the stock market may get a bit more skittish," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut. "It's just one thing we don't need right now."

The White House said on Friday that it had no new information to disclose about whether a nuclear test was being planned, but said North Korea should not carry out the test.

On Friday, U.S. crude oil for November delivery settled at $59.76 per barrel -- down 5 percent for the week. NYMEX crude is down 24 percent from its record set in July.


EARNINGS ON FRONT BURNER

On Tuesday, the third-quarter earnings season kicks off for blue chips with Alcoa reporting results, followed by General Electric on Friday.

"Earnings have been on the back burner, and they move to the front very soon," said Michael Panzner, vice president of sales trading at Collins Stewart in New York. "I have a funny feeling things haven't been particularly great."

S&P 500 companies are expected to achieve third-quarter earnings growth of 14.1 percent from a year earlier, according to Reuters Estimates. Meanwhile, pre-announcement activity for U.S. companies stayed negative for the week ended Sept. 29.


FOMC MINUTES, RETAIL SALES AHEAD

Next week's economic data could help investors assess the likely magnitude of consumer spending before the start of the holiday season as well as the Fed's view of the economy.

On Tuesday, the government releases its report on wholesale inventories for August. Economists polled by Reuters expect inventories to rise 0.7 percent, down from a 0.8 percent gain in the previous month.

Minutes of the Federal Open Market Committee's Sept. 20 meeting will be released on Wednesday and the Fed's Beige Book -- a survey of economic conditions in the Fed's 12 districts -- will follow on Thursday.

The international trade deficit for August, also due on Thursday, is forecast at $66.70 billion, down from $68 billion in July, according to the Reuters poll.

A slew of data is due on Friday, including import prices, retail sales and the University of Michigan's reading on consumer confidence.

Import prices likely shrank 1.2 percent in September, after a 0.8 percent gain in the previous month, according to the estimates of economists surveyed by Reuters.

Retail sales for September are forecast to rise 0.2 percent, matching a 0.2 percent gain in August, according to economists polled by Reuters. Excluding auto sales, September's retail sales are seen unchanged, compared with a 0.2 percent gain the previous month.

The preliminary October reading of the University of Michigan's consumer sentiment index probably will show a rise to 86.5 from 85.4 in September, according to the Reuters poll.

Bloomberg - 6 October 2006

Crude Oil Falls Amid Speculation OPEC Won't Make Proposed Cuts - By Mark Shenk


Crude oil fell on speculation that members of the Organization of Petroleum Exporting Countries won't follow through with production cuts.

``Lately OPEC hasn't had to do anything,'' said Bill O'Grady, an analyst with AG Edwards & Sons in St. Louis. ``It gets hard when they have to make sacrifices. Nobody wants to cut while the other guys continue to pump and reap gains.''

Nigeria and Venezuela said last week they would cut a total of 170,000 barrels a day to prop up prices. OPEC President Edmund Daukoru said in an interview yesterday that Saudi Arabia, Libya, Algeria, Kuwait and Iran may join in the cuts. Saudi Arabia would back a consensus by members on whether to reduce output and wouldn't oppose a meeting, Al-Hayat newspaper reported today.

Crude oil for November delivery fell 27 cents, or 0.4 percent, to close at $59.76 a barrel on the New York Mercantile Exchange. Prices touched $57.75 on Oct. 4, the lowest since Feb. 16. Futures have declined 5 percent this week and are down 24 percent from a record $78.40 a barrel on July 14 as tensions in the Middle East eased and fuel stockpiles increased.

Daukoru said today the group may reach a consensus by Oct. 9 on supply cuts of as much as 1 million barrels a day, Reuters reported. OPEC members remain undecided on whether to hold an emergency meeting on Oct. 18 and 19 in Vienna, he said, Reuters reported.


Proposed Meeting

``OPEC is likely to hold an emergency meeting Oct. 18 and 19 in Vienna if the members show readiness to carry out a substantial reduction in production of not less than one million barrels a day,'' the London-based daily said, citing an unidentified OPEC official. ``Saudi Arabia, as the largest OPEC member, supports any position on which there is a consensus.''

The group's next scheduled meeting is Dec. 14 in Abuja, Nigeria. The 11 members of OPEC, which produce about 40 percent of world oil, kept their output target at 28 million barrels a day at their Sept. 11 meeting.

``High inventories and falling prices are not a very good scenario for OPEC,'' said Francisco Blanch, senior oil strategist at Merrill Lynch & Co. ``I think $55 a barrel is probably a level they would want to hold onto, certainly $50 would get them quite nervous.''

U.S. crude oil, gasoline, heating oil, diesel and natural gas supplies last week were above the five-year average for the period, the Energy Department said on Oct. 4. The U.S. consumes 25 percent of the world's oil.

``The market is well supplied and it looks like economic growth will be slower in 2007 than in 2006,'' said Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina. The slowdown ``is being interpreted as bearish for energy demand.''


Iranian Talks

European Union talks with Iran on restricting the Islamic Republic's nuclear program have failed, U.K. Foreign Secretary Margaret Beckett said. The U.S. and EU say Iran's nuclear power program is aimed at developing weapons, which would put it in breach of treaty obligations and risk escalating tensions in the Middle East, source of almost a third of the world's oil.

The U.S. is pushing for economic sanctions to discourage Iran from acquiring nuclear arms. Russia, which has veto power as one of the five permanent members of the United Nations Security Council, yesterday reiterated its opposition to immediate sanctions.

www.thepost.ie - 08 October 2006

Rise of commodities unlikely to be sustained - By Eugene Kiernan


Commodities have garnered a lot of the financial market limelight in 2006. In the past 18 months, the prices of basic commodities such as aluminium, copper, lead and zinc have doubled in value.

Commodity prices have indeed run very hard. Since the end of 2001, base metal prices have soared about 270 per cent and oil prices have also risen. From $19 for a barrel of oil in 2001 to around $60 currently, we have seen a tripling in energy costs.

This move in commodities has generated a lot of interest and led many portfolio investors to consider commodities as an asset class to be included in pension funds. Base metals, as measured by the Bloomberg Base Metals Index, peaked in early May, slumped by over 20 per cent to mid-June, and then staged a slow recovery. They are currently 10 per cent below these recent highs today. As a pattern, it was not dissimilar to what we saw in many global equity markets.

Oil prices displayed a different pattern, rising to just under $79 for Brent crude in early August only to slide by 25 per cent in the weeks since. This decline has been partly responsible for the better feel to equity markets since mid summer. Do these short-term trends have any implication for investors? The commodity which attracts the most attention is oil. Energy prices have been dancing to a different beat in this most recent period. The most recent leg has been clearly downward. How have economies and markets responded to these gyrations?

Its not that economies have become immune to energy price increases, but they have learned to cope better.

Oil companies are an important part of many of the global stock markets today. In Britain, oil companies will account for about 20 per cent of all profits earned in the market. In the US, majors such as Exxon and Chevron account for 6 per cent or so of the S&P index.

Higher oil prices mean stronger cash flows for these companies, but volatile oil prices can hamper planning and indeed final customer demand. Senior management from the global players in this industry have always spoken about long-term pricing for oil being substantially below the level we approached in mid-2006. The key point from an investors point of view is that at oil price levels even lower than today, free cash flow in these companies will still be sufficient to fund developing the business and allow cash to be returned to share holders in healthy dividends or buy-backs.

This robust aspect of energy stock performance is clearly displayed when we look at how their share prices have done even as oil prices have plummeted. The energy sector has lagged other sectors of the market, but the fallout is not as severe as the fall in the energy price itself.

These are volatile times for commodity prices, but what recent moves may have shown investors is that the hyper growth rate that we have seen in commodity prices should not be extrapolated into the future. Oil shares and the oil price are not the same thing.

Oct. 9 (Bloomberg)

Oil Rises After Saudi, OPEC Members Agree to Cut Production - By Christian Schmollinger and Gavin Evans


Crude oil rose in New York after Saudi Arabia and five other OPEC members agreed to cut output by about 3.4 percent to stem a two-month slide in prices.

The six countries, including Venezuela and Nigeria, which promised to lower production on Oct. 1, will reduce supply by 1 million barrels a day, Levi Ajuonuma, spokesman for the Organization of Petroleum Exporting Countries, said yesterday. The 11-member group pumps about 40 percent of the world's oil.

``A 3 1/2 percent cut is quite substantial considering they said a month ago they wouldn't be making any,'' said Steven Rowles, an analyst with CFC Seymour Ltd. in Hong Kong. ``It really comes down to what Saudi Arabia is going to be cutting.''

Oil for November delivery rose as much as 74 cents, or 1.2 percent, to $60.50 a barrel in after-hours electronic trading on the New York Mercantile Exchange. North Korea's announcement today of its first nuclear weapons test failed to move the market because the country doesn't export oil, said Rowan Menzies, an analyst at Commodity Warrants Australia in Sydney.

Crude fell to a seven-month low of $57.75 on Oct. 4 as U.S. inventories rose and concerns eased about a standoff between the U.S. and Iran over the Middle East oil producer's nuclear program. OPEC usually increases output in the fourth quarter when global demand peaks because of heating-fuel use.

Oil traded at $60.16 at 1:07 p.m. Singapore time. Prices have dropped 23 percent from a record $78.40 on July 14.

In London, Brent crude oil for November settlement gained as much as 73 cents, or 1.2 percent, to $60.56 cents on the ICE Futures Exchange.

Demand in the fourth quarter will average 85.6 million barrels a day, up 2.2 percent from a year ago, OPEC said in a Sept. 15 forecast.



Quota Review

Saudi Arabia, Libya, Algeria, and Kuwait joined Venezuela and Nigeria, which announced their cut last week. The plan by the six countries represents a 3.4 percent reduction from last month's estimated output by OPEC.

OPEC President Edmund Daukoru urged member states Oct. 3 to lower production before the group's next scheduled meeting in December. Venezuela and Nigeria pledged to cut output by a total of 170,000 barrels a day.

The group agreed at a meeting on Sept. 11 to leave its output ceiling unchanged at 28 million barrels a day. The quota doesn't apply to Iraq, which pumped about 2 million barrels a day last month. OPEC may say today whether it plans to hold an emergency meeting to ratify the informal cuts that have been agreed, Ajuonuma said.



Winter Demand

OPEC didn't give details of the size of the cut by each country. Saudi Arabia is the world's biggest oil producer and accounted for about 31 percent of the group's output last month.

``This will put a floor in the market'' around $60 a barrel, said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. Further cuts may not be needed once falling temperatures boost winter heating demand in the Northern Hemisphere, he said.

North Korea said it detonated a nuclear bomb, hours after the Japanese and Chinese governments warned the communist country against proceeding with the test.

``The nuclear test, conducted under a scientific method and under specific calculations, did not cause any danger,'' North Korea's official Korea Central News Agency said today. It is the first time North Korea has announced a nuclear test.



Oil Bets

Rising stockpiles and falling prices prompted hedge-fund managers and other large speculators to almost eliminate their bets on higher oil prices last week, according to a U.S. Commodity Futures Trading Commission report.

Speculative long positions, or bets prices will rise, fell by 99 percent to 131 contracts in the week ended Oct. 3. That was the smallest long position in New York oil futures since March 24, according to commission data.

Oil stockpiles in the U.S., the world's biggest consumer, held 328.1 million barrels on Sept. 29, or 6.7 percent more than a year earlier, the Energy Department said last week.

Supplies of distillates, including diesel and heating oil, held 151.5 million barrels, 18 percent higher than a year ago.

``Inventories around the world, most notably in Europe and North America, are quite high already,'' National Australia's Burg said.

Oct. 11 (Bloomberg)

Oil Trades Near Eight-Month Low on Saudi Shipments, Inventories - By Gavin Evans and Hector Forster


Crude oil traded near an eight-month low on concern Saudi Arabia's decision to maintain shipments amid a seasonal drop in demand will increase global stockpiles.

Oil closed yesterday at its lowest since February after Saudi Arabia's state oil company told customers in Asia and Europe to expect no cutbacks in their November supplies. A U.S. government report tomorrow will probably show already above- average inventories in the world's biggest oil consumer gained 1.5 million barrels last week.

``Saudi Aramco seems to be quite happy at these sorts of levels'' for oil prices, said Peter McGuire, managing director of Sydney-based Commodity Warrants Australia said in an interview in Hong Kong. ``We could see oil move down to $55.''

Crude oil for November delivery was at $58.51 a barrel, down 1 cent, in after-hours electronic trading on the New York Mercantile Exchange at 12:05 p.m. in Singapore. The contract fell $1.44, or 2.4 percent, to close at $58.52 a barrel yesterday, the lowest since Feb. 16.

OPEC, the Organization of Petroleum Exporting Countries, pumps about 40 percent of the world's oil, and wants to trim production by 1 million barrels a day to stem the slide in prices. The 11 member states produced about 29.6 million barrels a day last month, according to a Bloomberg survey, down from 29.9 million in July.

``We're going to consolidate around here,'' said Mark Waggoner, president of Excel Futures Inc. in Huntington Beach, California. OPEC has ``already started slowing down production. They're just trying to make it formal now.''

In London, Brent crude oil for November settlement was at $59.43 a barrel, up 9 cents, on the ICE Futures exchange at 11:59 a.m. Singapore time. The contract yesterday declined $1.20, or 2 percent, to close at $59.34 a barrel.



Formalize Cuts

Saudi Arabia, the group's biggest producer, notified refiners in Japan, India, Taiwan and South Korea that they will get the full volume of oil called for in annual contracts, refinery officials and traders said yesterday. Buyers in Europe will get the same as last month.

``History shows that OPEC deals only work when the Saudis are on board,'' Bill O'Grady, an analyst with A.G. Edwards & Sons in St. Louis, said yesterday. ``Allocating the cuts is always the problem.''

Saudi Arabia accounts for almost a third of OPEC's output. The country hasn't officially commented on whether it's taking part in any reduction in OPEC's supplies. Reuters news service reported Oct. 9 that Aramco told global major oil companies it would lower November supplies by 5 percent.

OPEC is trying to turn existing ``voluntary'' cutbacks by several members into a group-wide, formal accord. Nigeria and Venezuela have announced cuts totaling a combined 170,000 barrels a day. Saudi Arabia, Kuwait, Libya and Algeria, also agreed to informal cutbacks, a spokesman for OPEC President Edmund Daukoru's spokesman said on Oct. 8.



U.S. Inventories

Oil reached a record $78.40 a barrel on July 14 amid concern that fighting in Lebanon between Israel and the Islamic militia Hezbollah would spread through the Middle East. Prices have fallen 21 percent in the past two months as stockpiles rose and the end of summer vacations in the U.S. trimmed gasoline demand.

The pre-winter refinery maintenance will stem the recent surge in product stockpiles, Excel's Waggoner said. Crude oil inventories will then start being drawn down once refiners ramp up production in to two to three weeks.

``We're going to see builds across the board, but I don't think they're going to be huge'' this week, he said.

U.S. crude oil inventories held 328.1 million barrels on Sept. 29, 13 percent above the five-year average for the period. Stockpiles probably gained 1.5 million barrels last week, according to the median estimate from a Bloomberg News survey of 12 analysts.

Distillate supplies, including heating oil and diesel, probably gained 125,000 barrels, according to the survey, their ninth straight weekly gain. Stockpiles held 151.5 million barrels on Sept. 29, 19 percent above the five-year average.

Oct. 12 (Bloomberg)

Oil Trades Near Lowest This Year as OPEC Output Cut May Fail - By Hector Forster and Gavin Evans


Crude oil traded near the lowest level this year in New York on speculation OPEC will fail to cut production as demand growth slows and U.S. stockpiles rise.

Oil's 26 percent plunge from July's record prompted plans by the Organization of Petroleum Exporting Countries to lower output. Conflicting statements and a lack of details have led to skepticism that the group will lower supply amid an increase in U.S. inventories.

OPEC's ``just completely mismanaging their communication,'' said Tobin Gorey, commodity analyst at Commonwealth Bank of Australia Ltd. in Sydney. ``If they cut a million barrels a day of production that is going to affect the oil market.''

Crude oil for November delivery was at $57.71 a barrel, up 12 cents, in after-hours electronic trading on the New York Mercantile Exchange at 1:39 p.m. in Singapore.

The contract fell 93 cents, or 1.6 percent, to close $57.59 a barrel yesterday after reaching $57.37, the lowest since Dec. 27. Oil has fallen 3.5 percent this week.

OPEC's reductions will be made voluntarily on ``a member- by-member'' basis, Levi Ajuonuma, a spokesman for OPEC President Edmund Daukoru, said yesterday. The oil ministry of Saudi Arabia, OPEC's biggest producer, declined to comment on whether the kingdom will participate in the cut while Qatari Oil Minister Abdullah bin Hamad al-Attiyah said the group should trim current production by 1 million barrels a day.

The 10 members of OPEC with production targets pumped 27.63 million barrels a day last month, according to Bloomberg estimates. That's below the group's target of 28 million barrels a day.

In London, Brent crude oil for November settlement was at $58.74 a barrel, up 9 cents, on the ICE Futures exchange at 1:27 p.m. Singapore time.



Saudi Arabia

Saudi Arabia, the group's biggest producer, notified refiners in Japan, India, Taiwan and South Korea that they will get in November the full volume of oil called for in annual contracts, refinery officials and traders said Oct. 10. Buyers in Europe will get the same as last month.

``The Saudis have to show their contribution to any cuts and that's only likely if the price level is less than $55,'' said Kazunaga Maeno, an oil trader at Mitsubishi Corp. in Tokyo. ``All are waiting for OPEC's final comment.''

Oil reached an all-time high in July on concern there wasn't sufficient spare production capacity to replace any output lost if Israeli's conflict against the Hezbollah militia in Lebanon spread in the Middle East, source of a third of the world's oil.



Perverse Outcome

A ``perverse'' outcome of an OPEC output cut would be an increase in global spare capacity, Gerard Burg, minerals and energy economist at National Australia Bank Ltd. said in a report yesterday.

``However, the net effect of reduced immediate supply is likely to be higher prices in the short term,'' he said.

Oil has fallen the past three months as demand in the U.S., the world's biggest oil user, eased with the end of the summer vacation driving season and stockpiles rose.

``This is probably quite a reasonable price given where demand is and where inventories are,'' Commonwealth's Gorey said.

A U.S. Energy Department report later today will probably show the nation's oil inventories rose 1.5 million barrels last week, based on the median estimate from a Bloomberg News survey of 14 analysts. Stockpiles held 328.1 million barrels on Sept. 29, 13 percent more than the five-year average for the period.



55 Days

Stockpiles in the industrialized states of the Organization for Economic Cooperation and Development represent about 55 days of supply, the best pre-winter level for ``several years,'' the Paris-based IEA said in a monthly forecast yesterday.

World demand peaks in the fourth quarter when refiners make heating fuel for the Northern Hemisphere winter.

The International Energy Agency yesterday cut its world demand forecast this year and next for a second month, citing the effect of higher prices and slowing U.S. economic growth.

Consumption will average 86.2 million barrels a day in the fourth quarter, 100,000 barrels less than the agency forecast last month. Demand through 2007 will average 86 million barrels a day, down 200,000 barrels than the previous forecast.

New York oil futures are headed for their sixth weekly decline in seven.

Oct. 13 (Bloomberg)

Oil Rises as U.S. Demand Gains, Heating Fuel Stockpiles Drop - By Gavin Evans


Crude oil rose in New York after a report showed U.S. fuel demand increased for the first time in seven weeks and heating fuel supplies fell more than expected.

Oil rebounded from near a nine-month low yesterday after an Energy Department report showed U.S. fuel consumption gained 3.5 percent last week. Distillates stockpiles, including heating oil and diesel, fell 1.5 million barrels, 12 times the decline forecast in a Bloomberg News survey of analysts.

``We're close to the bottom,'' said Chris Mennis, owner of oil broker New Wave Energy in Aptos, California. ``The demand is very good for distillate and it's better than last year for gasoline. The seasonal decline was about what it should have been'' and the world economy remains strong, he said.

Crude oil for November delivery rose as much as 52 cents, or 0.9 percent, to $58.38 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $58.21 at 10:18 a.m. in Singapore.

Yesterday, the contract rose 27 cents, or 0.5 percent, to close at $57.86 a barrel, its first gain in three days. Futures touched $57.22, the lowest since Dec. 19, before the department's report.

The decline in distillate stockpiles left supplies at 149.9 million barrels of fuel, or 18 percent more than the five-year average for the period, the department said.



Winter Fuel

Distillate stockpiles and production dropped because refiners cut output for a third week as they carried out maintenance before demand surges. World oil demand peaks in the fourth-quarter when refiners make heating fuel for the Northern Hemisphere winter.

U.S. refiners used 89.2 percent of the plant capacity, last week, less than forecast and the lowest in five months.

``This scare will prove to be very short-lived,'' said Antonio Szabo, chief executive officer of consultant Stone Bond Technologies. ``I'm willing to bet that as early as next week, refineries will start making more heating oil.''

Oil inventories in the U.S., the world's biggest consumer, jumped 2.41 million barrels to 330.5 million last week, 14 percent more than the five-year average. An increase of 1.5 million barrels was expected, according to the analyst survey.

Stockpiles in the industrialized countries of the Organization of Economic Cooperation and Development represent about 55 days of supply, the International Energy Agency said in a monthly report on Oct. 11.



Price Slide

``We're still heading to $55,'' Ric Navy, a broker at BNP Paribas SA in New York, said yesterday. ``The market has been hit with a huge dose of reality in the last month. Crude, distillate and gasoline inventories combined are more than 70 million barrels higher than last year.''

Oil futures have tumbled more than $20 a barrel, or 26 percent, from the record $78.40 reached on July 14. Prices fell as Middle East tensions eased, U.S. gasoline demand slowed with the end of summer vacations and fuel stockpiles rose.

The slide in prices prompted the Organization of Petroleum Exporting Countries to seek a voluntary 1 million-barrel-a-day output cut from its members. OPEC, which produces about 40 percent of the world's oil, pumped about 29.7 million barrels a day last month, according to a Bloomberg survey.

There is ``no unity'' within OPEC for a cut and the group is unlikely to act before futures prices reach $55 a barrel, Stone Bond's Szabo said.

``There is not a serious over-supply in the market,'' he said.



China's Demand

While the fundamentals for oil are still bearish, some investors are buying now to avoid the risk being caught out when the market turns, New Wave's Mennis said.

``The bottom is not going to be $50,'' he said. ``If you buy it now you risk maybe five bucks. But that's better than buying it at $70.''

Rising demand from China may also support prices. China yesterday announced it imported 16 percent more crude oil in the first nine months of 2006 than a year earlier to meet rising energy demand in the world's fastest-growing major economy.

Imports climbed to 109.25 million metric tons (about 2.9 million barrels a day), the Beijing-based Customs General Administration of China said on its Web site yesterday.

Oct. 13 (Bloomberg)

Oil Climbs as Norway Shuts Two Platforms, U.S. Demand Increases - By Gene Laverty


Crude oil rose after Norway shut two offshore platforms for safety precautions and U.S. demand gained strength.

Statoil ASA and Royal Dutch Shell Plc today began closing the rigs, which represent almost 10 percent of output in the nation, the world's third-largest crude exporter. New York oil futures rebounded after touching a low for the year yesterday as the U.S. Energy Department reported fuel consumption gained last week, the first increase in seven weeks.

``The crude market is finally starting to pay attention to supply disruptions,'' said Peter Linder, an energy analyst and senior adviser with DeltaOne Capital Partners in Calgary. ``A number of events that would support much higher prices in the last two weeks have been ignored.''

Crude oil for November delivery rose 71 cents, or 1.2 percent, to close at $58.57 a barrel on the New York Mercantile Exchange. Yesterday, futures touched $57.22, the lowest since Dec. 19. The contract slipped 2 percent this week.

Brent crude for November settlement advanced 76 cents, or 1.3 percent, to $59.52 a barrel on the ICE Futures exchange.

Statoil and Shell are halting output of about 280,000 barrels daily at the Snorre A platform in the North Sea and Draugen in the Norwegian Sea. Norway's Petroleum Safety Authority ordered the closures because tests found that one type of lifeboat is not strong enough to be dropped from the platforms to the sea, affecting the ability to evacuate in emergencies.

Norway denied Statoil and Shell applications for exemptions from the regulations yesterday, though both companies continued to produce oil and natural gas.



Decline From Record

Oil reached a record $78.40 a barrel on July 14 amid concern that fighting in Lebanon between Israel and Hezbollah would spread in the Middle East. Prices have fallen almost $20 a barrel in New York from the record as inventories rose and the end of summer vacations in the U.S. reduced gasoline demand.

Oil may fall next week on speculation the Organization of Petroleum Exporting Countries will fail to cut production enough to stem a slide in prices, according to a Bloomberg News survey. Nineteen of 41 analysts, traders and brokers, or 46 percent, said prices will fall. Twelve forecast an increase and 10 expected little change.

``The prices are relatively low and OPEC has said it wants to cut production,'' said Sandra Ebner, an economist at Deka Investment GmbH in Frankfurt. ``However, Saudi Arabia is not fully behind this measure. As long as Saudi Arabia does not make its wishes known, the markets will gamble.''



OPEC Vigilance

The OPEC crude oil basket price fell 6 cents to $54.19 a barrel yesterday. The daily price index is a weighted average of 11 crude blends produced by OPEC states.

``OPEC reaction when the price falls below $60 a barrel is a signal,'' said Antoine Leurent, an analyst with KBC Securities in Paris. ``The message is clear: Oil-producing countries won't just watch the price fall without reacting.''

OPEC will meet later this month to decide how to halt a drop in oil prices, Venezuelan Energy and Oil Minister Rafael Ramirez said in a televised interview. Ministers are agreed on the meeting and on a proposal to cut output by 1 million barrels a day, he said. Members are still considering whether the reduction should be from current output or from the group's official production target of 28 million.



Heating Oil

U.S. distillate stockpiles and production dropped because refiners cut output for a third week as they carried out maintenance before demand surges. World oil demand peaks in the fourth quarter when refiners make heating fuel for the Northern Hemisphere winter.

``Oil got a bump from the surprise drawdown of distillates last week,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. U.S. inventories of distillates, including heating oil, fell last week by 1.5 million barrels, 12 times the drop forecast in a Bloomberg News survey of analysts.

U.S. refiners used 89.2 percent of plant capacity last week, less than forecast and the lowest in five months. The decline in distillate stockpiles left supplies at 149.9 million barrels, or 18 percent more than the five-year average for the period, the Energy Department said yesterday.

Cold weather in the northern U.S. and a changeover to new fuel standards this weekend may also tax heating oil supplies, said Alaron's Flynn. Retailers are required to start selling ultra-low sulfur diesel next week.

Temperatures in the U.S. Midwest and Northeast will trail normal by as much as 12 degrees Fahrenheit (8 Celsius) through the weekend, according to MDA Federal's EarthSat Energy forecaster. The National Weather Service reported as much as 21 inches of snow had fallen around Buffalo, New York. The Northeast is the largest U.S. region where heating oil is used in furnaces.

Oil inventories in the U.S., the world's biggest consumer, jumped 2.41 million barrels to 330.5 million last week, 14 percent more than the five-year average. An increase of 1.5 million barrels was expected, according to Bloomberg's analyst survey.

Reuters - October 14 2006

OPEC to meet to discuss oil cut - Members of OPEC hope to remove excess oil from markets and put a floor under prices.


OPEC will meet in Qatar on October 19 to thrash out the details of a 1 million barrels per day cut in oil supplies and put a floor under prices, an OPEC official said on Saturday.

The gathering is likely to be far from straightforward even though all 11 members are united on the need to remove excess oil from world markets.

Iran and Venezuela, struggling to pump enough to meet their OPEC production quotas, do not want to cede market share to those -- such as top exporter Saudi Arabia and Algeria -- pumping beyond formal OPEC limits, delegates have said.

Oil prices have dropped by 20 percent since July to below $60 per barrel and the exporter group must act now to stem a "catastrophic" price slide, Edmund Daukoru of Nigeria told Reuters by telephone from the Niger Delta earlier on Saturday.

He said there was broad agreement the cut should be made from the average actual output level over the past 12 months, which is close to OPEC's existing production ceiling of 28 million bpd.

During that time, most member producers have been pumping at -- if not well beyond -- their individual OPEC quotas. But Indonesia and Venezuela have fallen well below theirs and Iran has had difficulty matching its limit.

"There is general agreement on the equity of using the average actual production over the past year ... It shows more equity to those who have put on more capacity over this period. It does not penalize them as much as it would have if we had used 28," Daukoru said.

"We will take one thing at a time and stabilize the market first. We are just taking practical measures. None of what we are doing is to make a permanent arrangement. What we are doing is just reacting to what is happening in the market."

"The time to do something is...now because we don't know where the floor of this drop will end. It would be foolish to wait till it gets to $10 before we do anything because that would really kill the capacity initiatives," he said.
Quotas

Some members of the group, such as the world's top oil exporter Saudi Arabia, have pumped far above their quotas this year to feed a surge in oil demand from Asia. Others, such as Venezuela and Indonesia, have been unable to meet their quotas due to capacity decline.

A cut from quotas would have spared Venezuela, Indonesia and -- to a certain extent -- Iran, from making a cut in actual supply.

Overall, the difference between average actual production by the 10 members with quotas and the existing ceiling was only about 50,000 bpd, Daukoru said.

Using actual production as a reference would mean that all members, excluding Iraq which has no quota, would be cutting output to stem sliding prices, Daukoru said. But he stressed that the group would not be setting new quotas.

"If we start debating quotas now, we will not be able to respond fast enough. If we start debating quotas now with prices the way they are, it would be foolish."

Analysts said OPEC would probably resolve the issue by publishing a table itemizing the volume to be cut by each of the 10 members, totaling 1 million bpd, but avoid specifying the new production limit for each country.

Oct. 17 (Bloomberg)

Oil Falls on Higher Supplies and Skepticism OPEC Will Make Cuts - By Mark Shenk


Crude oil fell for the first time in four days on forecasts that U.S. inventories rose and skepticism OPEC will cut production by 1 million barrels a day.

U.S. crude oil supplies probably climbed 1.5 million barrels last week, according to the median of forecasts by 14 analysts before an Energy Department report tomorrow. The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world's oil, will meet in Qatar in two days to confirm the informal agreement to reduce output.

``We are shrugging off OPEC's production cuts,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``There are healthy inventories and any cut in production will increase spare capacity, which undermines the bullish case.''

Crude oil for November delivery fell $1.01, or 1.7 percent, to close at $58.93 a barrel on the New York Mercantile Exchange. Futures touched $60.54, the highest since Oct. 10. Prices are down 8.4 percent from a year ago.

OPEC members will gather Oct. 19 in Doha, Qatar, to ratify the agreement, Kuwait's oil minister, Sheikh Ali-Jarrah al-Sabah, said. Ministers are concerned that prices may plunge after declining 22 percent in the past three months as U.S. fuel stockpiles increased.



Wait and See

``We will be waiting to see what OPEC actually does; they may surprise us and come through with a credible cut in output,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons Inc. in St. Louis.

Mohammed Barkindo, the acting secretary general of OPEC, said this week the group would discuss at the Oct. 19 meeting whether to cut actual production or to lower its output quota.

OPEC agreed at a meeting on Sept. 11 to leave its output ceiling unchanged at 28 million barrels a day. The quota doesn't apply to Iraq, which produced 2 million barrels a day last month. The group produced 29.64 million barrels a day in September, down from 29.8 million barrels a day in August, according to Bloomberg News estimates.

Signs of a slowing U.S. economy are also weighing on prices. Prices paid to U.S. producers fell last month by the most in more than three years and industrial production dropped, according to government reports released today. The U.S. consumes 25 percent of the world's oil.

``The economy is slowing down, which will hit consumption,'' O'Grady said. ``There won't be a sustained rise in prices unless OPEC makes real cuts, the weather cools or we get a geopolitical event.''



Iran's Nuclear Program

The European Union said its diplomacy is failing to curb Iran's nuclear program and the United Nations should act on U.S.- led demands for sanctions against the country. Iran has the world's second-biggest proved oil reserves and borders the Strait of Hormuz, a narrow waterway through which almost a quarter of the world's oil is shipped.

EU foreign ministers said the door is open for the UN Security Council to discuss sanctions against Iran for refusing to stop uranium enrichment, a process that can be used for nuclear power or bombs.

``It's unavoidable that the Security Council will now take up deliberations with the goal of a resolution and the first step on sanctions,'' German Foreign Minister Frank-Walter Steinmeier said at a meeting with his EU counterparts today in Luxembourg. French Foreign Minister Philippe Douste-Blazy said: ``The Iranians have refused everything. We have only one solution: to return to the UN Security Council.''

Iran defied an Aug. 31 Security Council deadline to suspend uranium enrichment. The U.S. has said it favors sanctions, while Russia and China have indicated their opposition to punitive action. The three countries, with France and the U.K., make up the permanent Security Council members



U.S. Inventories

Crude oil inventories in the week ended Oct. 6 were 14 percent above the five-year average for the period, the Energy Department said. Gasoline, heating oil and diesel stockpiles were also above the five-year average.

Brent crude oil for December fell 72 cents, or 1.2 percent, to close at $60.94 a barrel on the London-based ICE Futures exchange.

Oct. 18 (Bloomberg)

Crude Oil Rises as OPEC Meets Tomorrow to Decide on Output Cuts - By Christian Schmollinger and Hector Forster


Crude oil rose in New York before an OPEC meeting tomorrow that will decide on a plan to lower output by 1 million barrels a day.

Members of the Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world's oil, are meeting in Qatar to stem a three-month slide in prices. The group will cut production by about 3.6 percent, Kuwait's Sheikh Ali-Jarrah al-Sabah said yesterday, rather than reduce quotas which some members can't meet and others ignore.

``It's got to come from the actual production, because if it's from the quotas nothing much would happen,'' said Rowan Menzies, commodity market analyst at Commodity Warrants Australia in Sydney.

Crude oil for November delivery rose as much as 32 cents, or 0.5 percent, to $59.25 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $59.12 at 12:47 p.m. in Singapore. Prices have tumbled 25 percent from an all-time high of $78.40 reached on July 14.

The contract fell $1.01, or 1.7 percent, to close at $58.93 a barrel yesterday. Prices reached a one-week high of $60.54 after Kuwait's Ali-Jarrah said OPEC will agree to cut output by 1 million barrels a day.

``Prices have been rising as OPEC is saying they will cut,'' said Mikikaru Amano, an analyst at futures broker Taiheiyo Bussan Co. in Tokyo. ``There are enough inventories and the supply-demand balance has weakened.''

In London, Brent crude oil for December settlement rose as much as 36 cents, or 0.6 percent, to $61.30 a barrel on the ICE Futures Exchange. It was at $61.20 a barrel at 12:09 p.m. Singapore time.



Demand Slowing

OPEC cut its oil consumption forecasts for 2006 and 2007 on Oct. 16, citing ``far from robust'' demand. Continuing daily output at September levels of 29.7 million barrels would increase stockpiles by 1 million barrels a day in the fourth quarter when they usually decline, the group said.

Oil fell to a 10-month low of $57.22 on Oct. 12 and has traded above $60 on only two days since.

``It's been trading somewhat side-ways for the last couple of weeks,'' said Mike Sander, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``If OPEC wasn't making these statements on production it would have gone much lower.''



Inventories Rising

An Energy Department report today will probably show the nation's above-average crude oil stockpiles rose for a third straight week, based on a Bloomberg News survey of 15 analysts.

U.S. crude oil inventories held 330.5 million barrels on Oct. 6, 14 percent higher than the five-year average.

Supplies probably gained 1.5 million barrels last week. Refinery utilization probably fell a fourth week to a five-month low of 88.8 percent as plant operators took advantage of weak pre-winter demand to carry out maintenance.

Supplies of distillate fuel, a category that includes heating oil and diesel, probably declined 800,000 barrels from 149.9 million the prior week. Ten analysts expected a decline, three forecast a gain and two said that supplies were unchanged.

The Energy Department is scheduled to release its weekly report on petroleum inventories today at 10:30 a.m. in Washington.

Oil declined yesterday after U.S. industrial production fell in September, signaling weaker demand in the world's largest energy consumer, as crude stockpiles may gain for a third week.

Industrial production in the U.S., which uses about a quarter of the world's oil, fell 0.6 percent in September after being unchanged in August, the Federal Reserve said yesterday. Economists had expected a 0.1 percent decline.

October 20, 2006 - ASSOCIATED PRESS

Commodities may sink even further - By Ellen Simon


Commodities had a miserable third quarter and many on Wall Street say they have further to fall. That theory was bolstered when oil prices recently sank to their lowest levels for the year.

If commodities prices do sink further, it will be bad news for emerging markets and the investors who have poured billions of dollars into them over the past three years.

Commodities prices tend to have a domino effect -- lower oil prices often drag down gold prices, for instance. And lower commodities prices tend to push down stocks in emerging markets such as Russia and Brazil, which have a rich supply of oil and metals, respectively.

While many emerging markets continue to be on a roll, if the commodity bears are right, there may be plenty of pain to spread around.

While investors pulled $263 million out of gold and natural resources funds for the week that ended Oct. 4, they still have $26.9 billion in the funds.

Stephen S. Roach, Morgan Stanley's chief economist, wrote that the tidal wave of money that has flowed in recently has transformed commodities markets from good economic indicators to an asset like any other -- susceptible to hysteria and bubbles.

"Just as return-hungry investors chased these markets on the upside, they could well run like lemmings to get out on the downside," Mr. Roach wrote.

Merrill Lynch & Co.'s chief investment strategist, Richard Bernstein, agreed, saying that cheap money and heavy borrowing inflated prices in commodities. Those prices are now 60 percent above what could be explained by fundamental supply and demand, he wrote earlier this month.

Other factors that pushed prices higher, such as the U.S. housing boom and the Chinese economy, could also drive prices lower.

The decline in home construction has already hit the lumber market, where prices recently dropped to five-year lows. Metals used in home building, such as copper, are also facing price pressure.

Mr. Roach argued that a downturn for U.S. consumers could slow business for Chinese producers.

Less use in the auto industry should affect steel, aluminum, glass and rubber demand, wrote Tobias Levkovich, Citigroup's chief U.S. strategist.

If the strategists are right, investors who have seen impressive run-ups in markets such as South Africa, up more than 25 percent year to date, might consider taking some money off the table -- and away from all the other dominoes.