DJ OIL FUTURES: Nymex Crude Falls Nearly 4%; OPEC Cuts Not Feared
Crude's nearly 4% drop on the New York Mercantile Exchange, coming after a 3% fall Monday, helped push the Dow Jones Industrial Average to an all-time intraday high and also helped send gold to a three-week low. The front-month November light, sweet crude contract fell $2.35 to $58.68 a barrel, its lowest close since Feb. 16. The front month contract is now slightly more than $1 off its lowest settlement for 2006, which was $57.65 on Feb. 15. Brent crude on the ICE futures exchange fell $2.12 to $58.33 a barrel, just 6 cents off its lowest settlement for the year,
November heating oil fell 4.8 cents to $1.6538 a gallon. Front-month unleaded gasoline fell 4.87 cents to $1.46 a gallon, also a seven-month low, and reformulated gasoline blendstock, or RBOB, fell 4.42 cents to $1.4983 a gallon. Final settlement prices weren't in yet.
"The question being asked is what price OPEC is going to defend and I think you can make a pretty good case it's going to be a lot lower than this," said Bill O'Grady, an analyst at A.G. Edwards in St. Louis. O'Grady said the downgrading of Colorado State University's hurricane forecast and its assessment that El Nino conditions took hold quicker than expected also weighed on prices.
Traders are ignoring some OPEC members' comments they are cutting output to buoy prices, instead waiting for comment from Saudi Arabia, OPEC's biggest oil exporter and the key powerbroker within the group. Based on comments at last month's OPEC meeting in September, some traders had been expecting OPEC to try to hold oil prices at $60 a barrel.
Calls from Organization of Petroleum Exporting Countries President Edmund Daukoru for other group members to follow his country of Nigeria in cutting production were dismissed by traders.
Iraq also weighed in to the mix of conflicting talk from the producer-group. Cutting oil output is "impractical" before the northern hemisphere winter, when demand normally rises, a senior Iraqi oil official said.
Traders have already shrugged off reports that OPEC members Nigeria and Venezuela intend to cut production this month to support prices, amid OPEC denials a deal on crimping output has been reached.
"We're going to need strong words from the Saudis," to cause supply concerns over OPEC cuts, said Aaron Kildow, a broker at Prudential Financial in New York. Kildow said funds and independent traders were the main sellers of crude Tuesday. Colorado State's much-watched forecasters said developing El Nino conditions in the Pacific Ocean led them to predict there will be no more intense hurricanes for the rest of the Atlantic hurricane season, which runs through November.
"Atlantic basin tropical cyclone activity for the 2006 season will be considerably less than previously predicted, largely because of the unexpected El Nino conditions that developed late this summer," Colorado State said.
As well as indicating oil and gas production in the Gulf of Mexico is at less risk, the forecast's talk of developing El Nino conditions could lead to speculation of a milder winter, which would be bad for heating oil demand.
Also weighing on crude demand forecasts, the Department of Energy said late Monday it will wait until at least after the winter heating season to add to its strategic petroleum reserves. Earlier this year, President George W. Bush ordered the department to hold off filling the reserve, which had been depleted in the wake of the severe 2005 hurricane season, ahead of the summer driving season.