Crude slid towards US$67 per barrel, following stock markets lower as traders worried about unseasonably large stockpiles at the end of the US summer holiday season. Schools in the US reopened this week, signalling an expected seasonal dip in car travel by American families. US demand for crude is also expected to soften in the next few weeks due to the approach of the autumn refinery maintenance season.
"The downwards pressure from still-high overall oil inventories and poor refining margins is expected to continue," Mike Wittner, the global head of oil research at Société Générale in London, told Dow Jones. On the New York Mercantile Exchange, the US futures contract for oil for October delivery fell as low as $67.05 in early trading yesterday, dropping more than 3 per cent from the previous day.
Oil prices, which started falling on Tuesday despite industry data showing US manufacturing activity was growing again after an 18-month decline, continued to slide yesterday even after the US government reported a sharp drop in petrol inventories. The latest figures from the US department of energy showed that petrol stocks shrank by 3 million barrels last week, while crude inventories fell by 400,000 barrels to 343.4 million barrels. The drop in crude inventories was slightly smaller than analysts had forecast.
"The market seems to react on negative news, but not on positive news," Carsten Fritsch, an oil analyst at Commerzbank, told Reuters. The price of crude is falling ahead of next Wednesday's OPEC meeting in Vienna. OPEC is likely to keep its production targets unchanged, the group's president, Jose Maria Botelho de Vasconcelos, said yesterday in Luanda, the Angolan capital. "We have been seeing slowly a much reduced variation of oil prices. This is a sign that the world economy is recovering," said Mr Botelho de Vasconcelos, who is also the oil minister of Angola.
A Kuwaiti OPEC delegate agreed that the group would probably keep output unchanged as long as crude remained at above $60. "The apparent truth remains the success of OPEC to get the prices to the organisation's targeted level," Mohammed al Shatti wrote in Kuwait's Al Rai newspaper. "Accordingly, the circumstances indicate that OPEC will continue to act as per the previous cuts agreed upon, without a change at its meeting in September."
OPEC pledged record production cuts of 4.2 million barrels per day (bpd) last year, in a series of decisions as crude tumbled from a record $147 per barrel to below $35 a barrel. In November, the Saudi King Abdullah said $75 per barrel would be a "fair" price for both oil producers and consumers. US crude touched $75 last week, as stock markets rose amid signs that oil demand was improving in Asia.
But Mr al Shatti said the outlook for oil demand in the US, the world's biggest energy consumer, remained unclear. "The rise in unemployment remains a threat to any increase in consumption, in addition to fears that a rise in prices and other factors could threaten the recovery of the US economy." ADP Employer Services yesterday reported a larger than expected 298,000 decline in US employment last month.
On the supply side, Russia reported a 5.9 per cent increase in crude exports to 5.42 million bpd last month, due to crude prices rising faster than Russia's export duty. A Reuters survey showed OPEC oil output rising last month as members relaxed their compliance with the promised cuts. @Email:email@example.com