Business | Oil & Gas
Oil plunges before Opec decision
Oil was near a new five-month low yesterday on expectations that the Organisation of Petroleum Exporting Countries (Opec) would leave formal output targets unchanged and as the threat of Hurricane Ike to US Gulf of Mexico energy infrastructure receded.
- Reuters
- Published: 23:25 September 9, 2008
London: Oil was near a new five-month low on Tuesday on expectations that the Organisation of Petroleum Exporting Countries (Opec) would leave formal output targets unchanged and as the threat of Hurricane Ike to US Gulf of Mexico energy infrastructure receded.
US crude fell $2.07 to $104.27 by 1508 GMT after hitting a fresh five-month low of $103.71 a barrel earlier. London Brent crude traded down $1.95 at $101.49.
Opec ministers have said oil prices are now more reflective of fundamentals.
"I think everything is in balance - inventories are in a healthy position," said Ali Al Naimi, oil minister for Saudi Arabia, the world's top exporter.
But the group could stand ready to trim excess supply above its agreed output limits to bolster prices that are down sharply from July peaks.
Output
As a whole, Opec is estimated to be producing about 790,000 barrels per day above a collective ceiling of 29.67 million bpd for its 12 members with output limits.
Oil has fallen nearly 30 per cent from record highs of more than $147 a barrel in July, pressured partly by a rebound in the US dollar and a drop in demand from top energy consumer, the United States.
"Opec leaving quotas unchanged is a little disappointing for the market and Ike looks more like a downstream threat at the current track," said UBS oil strategist Thomas Stenvoll.
Hurricane Ike approached western Cuba as a Category 1 storm before heading toward south Texas later in the week, but was expected to miss the bulk of the offshore platforms in the Gulf.
Energy companies - still recovering from Hurricane Gustav last week - began shutting production as Ike approached the Gulf, home to a quarter of US oil production and 15 per cent of natural gas output. "If this storm does nothing, this could be the event that pushes oil back below that $100 a barrel area," said Phil Flynn of Alaron Trading.
The impact of Gustav is expected to be reflected in weekly US government inventory data, due on Wednesday.
"We will see more than the usual amount of draws coming out of inventories both this week and next," said Edward Meir of broker MF Global.
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