China (Platts) -- Nov 26-30 2007
By reporters at Platts, the energy information division of the McGraw-Hill Companies. For more information about Platts' information products in China, contact Platts at china@platts.com, or call its representative office in Guangzhou at (+86) 20 2881 6588.
With only a few weeks to go before the end of another calendar year, the bull run that has gripped energy futures markets since September began to cool off. At a time of year when traders start closing their books on 12 months of trade, it seemed many were happy to get out of the oil markets as crude futures sagged a full 10% in value over the week.
"While a technical case can still be made that this is a deserved market correction that could still be followed by another run at record highs, we feel that most of the forces that drove values higher for several months have simply been reversed and will now contribute to additional price declines," Jim Ritterbusch, independent energy analyst, said in a report as the week came t a close.
Signals of an economic slowdown, which would slash demand for crude oil, refined products and natural gas, helped the complex move consistently lower through the week.
By the end of trading on Friday, light sweet crude futures settled at $88.71 per barrel on the New York Mercantile Exchange -- a drop of around 10% over the week and the first settlement below $90 since the end of October. On ICE Futures, Brent futures settled down 8% at $88.26. US natural gas dropped 5% in value, while heating oil, gasoil and gasoline futures all slumped by 6% or more in value. v Concerns about the US economy resurfaced. The US' consumer confidence index dropped by 7.9 points to 87.3 in November compared with the previous month, the New York-based Conference Board reported November 27.
"This month's deterioration in confidence was due primarily to the sharp decline in the Expectations Index. Consumers' apprehension about the short-term outlook is being fueled by volatility in financial markets, rising prices at the pump and the likelihood of larger home heating bills this winter," Lynn Franco, Director of The Conference Board Consumer Research Center, said in a statement.
Also bearish for crude was a rebound in the US dollar, and a statement from Indonesia that it would back a further increase in OPEC crude production if ministers meeting in Abu Dhabi on December 5 decide that world markets need more oil.
Looking less likely that OPEC will lift output
An increase in production from OPEC is looking less likely the more that crude oil prices fall below $90 -- not least because any increase agreed in December would not likely be produced until January and arrive in markets in February, just as the markets prepare for a seasonal downturn in demand.
"A further price decline will tend to discourage a further production increase; it is worth noting that the price action in the one to two weeks ahead of an OPEC meeting tends to provide a forecast of the price action to follow the summit," Timothy Evans, analyst at Citigroup, said in a report.
Indonesia was an exception among OPEC members when it indicated a willingness to support higher production. Qatari oil minister Abdullah al-Attiyah appeared to rule out a rise on November 30.
"The IEA are lowering their forecast for demand, we believe the supply is enough...even they [the International Energy Agency] are saying the supply is more than enough," Attiyah said in Doha, ahead of a December 1 meeting of the Organization of Arab Petroleum Exporting Countries.
Asked if his view that there was enough supply in the market meant there was no reason for OPEC to increase production, Attiyah said: "This is my opinion."
The Qatari minister said the main criterion for any OPEC supply increase was demand. Asked what would spur OPEC to increase supply, he said: "When we see a demand, a real demand." "What I'm concerned about is the question of the demand and supply balance," Attiyah said. Asked if the market was in balance, he said: "Yes, this is sure."
Nevertheless, high oil prices are likely to persist through the winter months, a top Kuwaiti oil official said November 27. Saad al-Shuwaib, chief executive and deputy chairman of Kuwait Petroleum Corporation, said geopolitical tensions related to the Middle East, Nigeria and Venezuela, the Iranian nuclear issue, and the recently-weak US dollar were all factors contributing to the high prices.
Hedge fund activity on futures exchanges, "which influenced prices by between $6 and $8 per barrel," also contributed to the price hike, Shuwaib said.
OPEC kingpin Saudi Arabia has not given any indication it may favor raising production, but the group's second-largest producer, Iran, does not seem to be ruling out the possibility of an output boost.
Updated: December 3, 2007
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