Bloomberg News

Crude Declines From One-Week High as OPEC Boosts Output Ceiling

December 14, 2011

Dec. 14 (Bloomberg) -- Oil fell from a one-week high in New York as the Organization of Petroleum Exporting Countries agreed to raise its production ceiling, moving the group’s supply target nearer to current output levels.

Futures declined as much as 1.8 percent, after surging 2.4 percent yesterday in the biggest gain in almost four weeks. OPEC agreed to a production limit of 30 million barrels a day, Venezuela’s Energy Minister Rafael Ramirez said at the group’s meeting in Vienna today. U.S. crude supplies rose last week and gasoline consumption decreased, the industry-funded American Petroleum Institute said yesterday. Crude extended its declines as equities fell and the euro reached its weakest level against the dollar since January.

“The production cap seems quite neutral, since demand is likely to be held back by weaker growth in the first half of next year,” said Filip Petersson, commodity strategist at SEB AB in Stockholm. “Bullishness from yesterday is dissipating.”

Crude for January delivery declined as much as $1.75 to $98.39 a barrel in electronic trading on the New York Mercantile Exchange. It was at $98.42 at 1:26 p.m. London time. Yesterday, the contract gained $2.37 to $100.14, the highest settlement since Dec. 7. Prices are up 7.7 percent this year after climbing 15 percent in 2010.

Brent oil for January settlement on the London-based ICE Futures Europe exchange was at $108.09 barrel, down $1.41. The contract expires tomorrow. The more-actively traded February future lost $1.47 to $107.61. The European benchmark was at a premium of $9.67 to New York-traded West Texas Intermediate grade. The spread was a record $27.88 on Oct. 14.

OPEC Agreement

OPEC’s decision marks the first change in its production limit in three years. The group agreed to the new limit though it won’t set individual quotas for each member nation, a person with knowledge of OPEC policy said earlier today while the ministers were still in talks.

“We have an agreement to maintain the market in balance and we’re going to adjust the level of production of each country to open space for Libyan production,” Ramirez said after the meeting ended.

OPEC’s last meeting in June broke up without consensus when six members including Iran and Venezuela opposed a push to pump more oil by Saudi Arabia and three other Gulf nations, which went ahead with an increase to make up for missing Libyan supplies. The group will need to produce 30.1 million barrels a day next year to balance global crude supply and demand, its secretariat said. The International Energy Agency estimates that OPEC will need to pump 30.2 million barrels next year.

U.S. Inventories

Crude stockpiles in the U.S., the world’s largest oil consumer, rose 462,000 barrels last week to 334.6 million, the API said yesterday. An Energy Department report today will probably show supplies fell 2.5 million barrels, based on the median estimate of 12 analysts surveyed by Bloomberg News.

Gasoline inventories slid 12,000 barrels last week, the API report showed. The Bloomberg survey indicated supplies may have increased 1.2 million barrels. Implied demand for the fuel fell 2.1 percent to the lowest since August, the API said.

Crude surged as much as 3.6 percent yesterday in New York, the biggest intraday jump this month. The gain may have been the result of a mistaken purchase by a trader yesterday, according to The Schork Group Inc., an energy consultant in Villanova, Pennsylvania.

“The only reasonable conclusion is the move was the result of a heavy finger on the bid button,” the consultant said in an e-mailed report. “The question is whether or not the keyboard stroke was intentional.”

Strait of Hormuz

The Schork Group said it is “highly skeptical” the market responded to reports from Iran’s Fars news agency that the country would simulate shutting the Strait of Hormuz. About 15.5 million barrels a day, or a sixth of global oil shipments, is transported through the waterway, according to the U.S. Energy Information Administration.

Closing the strait to shipping is not on Iran’s agenda, the state-run Al Alam news channel reported today, citing the country’s Foreign Ministry. Iran believes the region needs stability and calm, the channel’s website cited Ramin Mehmanparast, a ministry spokesman, as saying.

Iran, OPEC’s second-biggest producer after Saudi Arabia, supplied about 5 percent of the world’s crude last year, according to BP Plc’s annual Statistical Review of World Energy. Oil Minister Rostam Qasemi said he doesn’t expect the European Union to impose sanctions against imports of the nation’s crude.

“We don’t think they would put sanctions on Iran’s oil,” Qasemi said today in Vienna. “It’s not a very wise decision,” and would result in a “lot of cost” for the market, he said.

--With assistance from Yee Kai Pin in Singapore and Ben Sharples in Melbourne. Editors: John Buckley, Rob Verdonck

To contact the reporter on this story: Sherry Su in London at lsu23@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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