FUTURES MOVERS Oil closes below $28; gold drops $4
OPEC may hold special summit to mull output cuts
NEW YORK (CBS.MW) -- Crude prices closed back under $28 a barrel Monday and gold futures finished the session down nearly $4 on expectations the war in Iraq is almost over.
Talk that OPEC may decide to cut production at a special meeting, reportedly slated for later this month, lifted crude to an intraday high of $28.70, though the market focused mainly on the progress of coalition forces in Iraq.
Gold futures prices settled lower on the war news. June gold fell $3.80 to $322.20 an ounce after losing as much as $6 an ounce. See Metals Stocks.
"As news that coalition forces are operating, apparently with little resistance, in central Baghdad reaches the markets, the overwhelming impulse is to sell," Michael Fitzpatrick, an analyst at Fimat USA, told clients Monday.
"The prospect of a return of Iraqi oil exports seems to be anticipated by the oil markets," he said.
Crude for May delivery quickly fell to a session low at $27.70 a barrel -- the lowest seen since March 25 -- before recovering to close at $27.96 a barrel, down 66 cents on the New York Mercantile Exchange.
Oil prices could be poised to fall further "once the risks of biological or chemical warfare is eliminated completely and coalition forces control Baghdad," said Thorsten Fischer, an oil economist at Economy.com.
Until then, "a part of the risk premium will remain, since fighting is not over and backlashes are possible despite the successful campaign so far," he said.
In the latest developments, U.S. and British forces fought their way into the centers of Baghdad and Basra, respectively, as the third week of the campaign to overthrow Iraqi leader Saddam Hussein built toward a climax. See full story.
OPEC chimes in
OPEC members will hold a special meeting on April 24 in Vienna to discuss oil prices and supplies, Dow Jones Newswire reported, citing a source within the oil-exporting organization. OPEC's next scheduled meeting isn't until June 11 in Doha, Qatar.
But OPEC President Abdullah Hamad bin al-Attiyah told Dow Jones the April meeting, aimed at discussing a possible output cut to correct a glut of oil and "dramatic" drop in prices, still has to be approved by the group's members.
OPEC members could decide even sooner by phone to reduce output if oil prices decline further, he was quoted as saying.
"OPEC may cut [oil] production at a time when we actually need all the oil we can get," said Phil Flynn, a senior analyst at Alaron Trading in Chicago, adding that the oil cartel is "a little distressed by the quick fall in price."
"If they cut in April, it could mean that we could see the possibility of tight supplies and shortages this summer," he said.
The cartel's output, excluding Iraq, totaled 26.25 million barrels a day in March, according to a Dow Jones survey -- above the quota limit of 24.5 million barrels per day.
IFR Pegasus senior analyst Tim Evans doesn't think OPEC will make any changes to its official output quota, but it'll likely "seek to reinstate compliance efforts."
Economy.com's Fischer, pointed out that "OPEC seems to be concerned about too much oil in the market."
This much, he said, is borne out by the price for its reference "basket" of seven crudes. That price has fallen to near $25 a barrel, which is the cartel's price target.
Venezuela, Nigeria also in the mix
Separately, news that some oil companies have begun to restart operations in Nigeria also pressured prices. Ethnic clashes there in recent weeks had prompted many oil companies to halt production in order to keep employees and facilities safe.
Production in Nigeria has fallen by about 800,000 barrels per day as a result of the unrest, according to the Energy Department. But Royal Dutch/Shell (RD: news, chart, profile) (SC: news, chart, profile) and ChevronTexaco (CVX: news, chart, profile) announced Friday they were gradually restarting some production out of the area.
Meanwhile, Petroleos de Venezuela announced a new oil field with reserves of more than 350 million barrels of light crude. Venezuela, with the largest oil reserves outside the Middle East, is a major supplier of oil and gasoline to the U.S.
Preliminary drilling on the Chaguaramal field in the eastern state of Monagas also revealed deposits of 870 billion cubic feet of natural gas, the state-run company said.
Total deposits in the newly discovered field may be as high as 460 million barrels of oil and 1.6 trillion cubic feet of gas, depending on the results of more drilling.
Supplies back in focus
With most of the war news "in the market" already, "supply data will be the driver for oil in the weeks ahead, just as stock traders will refocus on earnings and valuations," said Michael Armbruster, an analyst at Altavest Worldwide Trading.
Until the market sees further evidence of inventory builds, John Person, head financial analyst at Infinity Brokerage Services, believes crude prices will likely hold near $27.50 to $28 a barrel.
Kurt Hallead, oilfield services analyst at RBC Capital Markets, expects oil prices to sink to $24 a barrel in the second quarter.
"Global oversupply and a drop in demand (due to seasonal adjustments, previous stockpiling, and global economic weakness) will push the price down to this level," he said.
He also believes "OPEC will follow the Saudi lead and scale back production to stabilize pricing."
The latest U.S. inventories updates revealed that crude supplies are on the rise, as Saudi Arabia helps to offset the impact of production disruptions seen in Iraq and Nigeria.
Last week, the Energy Department and the American Petroleum Institute reported sizable climbs in crude inventories, along with a rise in gasoline supplies and a drop in distillate stocks. Still, crude and gasoline supplies remain well below year-ago levels. See full story.
In petroleum-product action Monday, futures prices ended lower, following crude futures down. May heating oil closed at 71.64 cents a gallon, down 0.96 cent, while May unleaded gasoline declined 2.78 cents to 84.24 cents a gallon.
Retail gasoline prices remain relatively high, but have been on the decline since March 19, according to AAA's daily fuel gauge report. The average U.S. price for gasoline at the pump stood at $1.637 a gallon as of early Monday, compared with $1.643 on Friday, the report said. A year ago, prices were at $1.388 a gallon.
Elsewhere on Nymex, May natural gas closed at $5.134 per million British thermal units, up 19.1 cents, with tight supplies still providing a boost to the market.
Total stocks of 680 billion cubic feet as of March 28 are 820 billion cubic feet less than last year at this time, according to the Energy Department.
In equities dealings, the Philadelphia Oil Service Index ($OSX: news, chart, profile) traded in a tight range. See Energy Stocks.
And the Reuters/CRB Index, a broad-based measure of the commodity futures market, closed slightly higher at 230.4, up 0.4 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.
