As Opec nations make their biggest oil production cuts on record, Brazil, Russia and the US are pumping more, threatening to send crude back to below $50 a barrel as demand slows.
US imports from the Organization of Petroleum Exporting Countries (Opec) fell 818,000 barrels a day, or 14 per cent, to 5.02 million in January from a year earlier, according to the latest monthly report from the Energy Department. At the same time, US’ imports from Brazil more than doubled to 397,000 and Russia’s increased almost 10-fold to 157,000, a trend that continued in February and March.
While the median forecast in a Bloomberg survey shows crude in New York averaging $61 a barrel in the fourth quarter, up from the second-quarter’s estimate of $50, traders are increasing bets on a decline. The fastest-growing options contract on the New York Mercantile Exchange is for prices to fall below $40 a barrel by May 14.
“Opec has done a good job keeping oil in the $50 area, but they will have to cut substantially more, maybe more than they are capable of, if they want higher prices,” said John Kilduff, senior vice president of energy at MF Global in New York. “You are going to hear greater calls for non-Opec producers to cooperate and make cuts.” The US used an average of 18.9 million barrels a day in the four weeks ended April 3, down 4.4 per cent from a year earlier, the lowest level since October. Gross domestic product will contract by 3.8 per cent in North America in 2009, the International Energy Agency said in a report on April 10.
Open interest, or the number of outstanding contracts, on the June put option for oil to fall to $40 a barrel rose by 20 per cent to 24,503 contracts in the five trading days from April 3 to April 9. A so-called put gives the owner the option to sell commodities at a predetermined price in the future. Bets that crude will drop to $45 rose by 13 per cent.
Inventories climbed 1.65 million barrels in the week ended April 3, the highest since July 1993. Supplies are 12 per cent above the 5-year average for the period and are the equivalent of 25.4 days of consumption, up from 22.1 days a year ago.
Algerian Oil Minister Chakib Khelil, who held the group’s rotating presidency in 2008, said on March 17 that he was disappointed Russia hadn’t cut production to support prices. Suppliers need prices in a $60-to-$75 range to support production of higher-cost resources, the Saudi Arabian Oil Minister Ali al-Naimi said on March 16 in Geneva.
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Russia also lowered export duties this month to $15 a barrel from $15.70 in March to boost exports, the IEA said in the April 10 report. Brazilian production will rise 7.2 percent in 2009 to 2.54 million barrels a day, the IEA said.
Crude may average $60
Oil prices may average less than $50 a barrel this year and rise to about $60 next year, should Opec maintain compliance with output quotas, Cambridge Energy Research Associates said. “The forecast is dependent on Opec’s production restraint,” David Hobbs, MD of Global Research, CERA said on Tuesday.
Oil at $50.58
Crude oil for May delivery rose 53 cents, or 1.1 per cent, to $50.58 a barrel at 10:35 am on the New York Mercantile Exchange. Brent crude oil for May rose $1.05, or 2 per cent, to $53.19 a barrel.