Oil prices edge lower on OPEC assurances ($48.14/bbl)

SINGAPORE (Reuters) - Oil prices eased on Monday after OPEC pledged to keep pumping at almost full tilt even as crude stockpiles in the United States remained abundant.

U.S. crude oil prices shed 22 cents to $48.45 a barrel, after making a shaky recovery on Friday from a three-month low. Prices had fallen almost 17 percent from the record high at $58.28 struck in early April.

Brent crude oil edged down 30 cents to $48.36 a barrel, erasing Friday's gains. OPEC president Sheikh Ahmad al-Fahd al-Sabah said on Sunday the cartel was supplying more than 30 million barrels per day (bpd) -- a 25-year high -- against an official ceiling of 27.5 million bpd.

"We will continue to focus on the market and will continue to supply the market," said Sheikh Ahmad, who is also Kuwaiti oil minister. But he added OPEC was unlikely to raise its formal output limit to match the actual supply.

He said that $40 a barrel was an acceptable price for the cartel's basket of crude oils, nearly $6 below its current level. Middle East Gulf oil producers have been raising output since March to build up stocks ahead of the fourth quarter, when demand for OPEC oil is expected to rise to 30.5 million bpd. A number of OPEC members have discounted any possible cuts to supply despite the current softer market.

The Organization of the Petroleum Exporting Countries is scheduled to meet on June 15 to plan its production for the second half.

OPEC's acting secretary general, Adnan Shihab Eldin, assured the market that the group's 11 producers could meet stronger world demand.

"It is a challenge, but... OPEC is well prepared to meet that challenge," he said on Sunday.

"30.5 million ... is well within our total production capacity. Our total production capacity is currently over 32 million, and it may even reach 33 by the end of the year."

Analysts said while prices had not yet reached a bottom, the market would get some support ahead of the holiday driving season in the U.S. and as mixed signals were emerging on China's appetite for crude oil and oil product imports.

The market has a little bit more downside to go, but it will be constrained by peak demand over the U.S. driving season, which starts in late May. That will be the main driver on prices over the next couple of weeks," said Daniel Hynes, resources analyst at ANZ Institutional Banking in Melbourne.

But strength in the dollar, which jumped to a seven-month peak on the euro and a one-month high against the yen on Monday curbed oil's chances for a recovery by capping speculative buying. A stronger U.S. currency makes dollar-denominated oil more expensive for investors using other currencies.

Crude oil speculators on the New York Mercantile Exchange cut their net long positions to a four-month low in the week ended May 10, as U.S. crude inventories rose to their highest levels in around six years.

Non-commercial crude oil speculators cut net buying positions to 85 from 8,403 in the previous week, the Commodity Futures Trading Commission said on Friday.

While the International Energy Agency said last week demand growth in China, Europe and the U.S. was less than expected, customs data showed on Friday that China's April crude oil imports surged 23 percent on a year ago to hit an all-time monthly high of 12.25 million tonnes.

However, China's oil products imports fell 37 percent in the first four months as the Asian powerhouse relied on its own refineries to feed demand.

5/16/05 Session Contract Detail for June 2005


	Last				48.14



	Open High				48.67



	Open Low				48.67



	High				48.67



	Low				48.12



	Settle				48.67



	Change				-0.53



	Open Interest				126055



	Volume				0



	Last Updated				5/16/05 03:25:58

"Then in the fall, look out below."

I'm not quite sure what you mean. Higher or lower prices?

Some people analyze charts instead of facts. One of the simplest chart patterns for some to interpret is the "head and shoulders" pattern Looking at the chart above, if oil were to fall to ~$40/bbl and then climb back to around $50 over the next few months, the chart would look like a "head" around April 1st and two lower peaks (or "shoulders") a few months on either side.

This is supposed to be the sign that the bottom is about to fall out of the market and it's going to fall (perhaps back down to the $25 range). Don't put too much stock (pun intended) in this kind of analysis for something like oil. But I expect we WILL see lower prices shortly.

Exactly. I'm not a chartist. I think oil prices are going to fall because I have tracked the reasons for their rise since 9/11, and my conclusion is those reasons were largely political fears and speculation, not economic realities. (Supply has consistently outstripped demand with these prices, stockpiles are building not dwindling, there is no actual shortage, etc). The economic side - which can last, IMO, - only justify a modest price increase from base levels. I just noticed from the posted chart how a chartist would read it, and related that information.

ok I got it. Thats exactly what I thought. Supply is not a problem. There is still the problem of not enough refineries here but that should soon change. In the mean time I too believe the market will stabilize and prices should be back to maybe just 10 to 15 percent over pre-9/11 figures.

If you take a look at oil futures, June delivery is $3.30 less than January delivery. In the past, the usual has been for oil prices to be discounted the further out you go. This makes me wonder if some people are expecting a possible interruption in middle east oil supplies later this year (possibly due to us taking out Iran)

Whether the market is generally higher or generally lower in the out months first reflects financing and carry possibilities. The natural financial relationship is for the more distant dates to be slightly higher, to reflect interest expense (holding the contract plus money is a substitute for holding the actual oil, for the majors - since they can arbitrage between them, that tends to equalize the returns they get from either). They regularly depart from that relationship because of seasonalty in prices, for one, and then as a third piece, because of market expectations. About $2 of the difference you point to may just reflect the first, financing issue, not a real price expectation. Also, note that volume is much lower in the out months. The contracts aren't all that liquid at the stated prices, making it hard to take them too seriously. FWIW.

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