http://www.bloomberg.com/apps/news?pid=20601087&sid=adKJKBMZjFuM&refer=homeCrude Oil Plunges Below $52 After U.S. Fuel Consumption Tumbles
By Mark Shenk
Jan. 11 (Bloomberg) --
Crude oil fell below $52 a barrel for the first time in 19 months after a report showed that U.S. fuel consumption plunged to the lowest since April 2004. Fuel use dropped 4 percent last week as mild weather curbed heating-oil use, the Energy Department said yesterday. The report also showed that supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, rose a fourth week. OPEC's president, Mohamed al-Hamli, urged members to comply with output cuts they agreed to make in November and February.
``Inventories are rising and demand is falling, a combination that's going to keep downward pressure on prices,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. OPEC's ``announcements of further cuts will be shrugged off because they didn't show strong discipline in November.''
Crude oil for February delivery fell $2.14, or 4 percent, to $51.88 a barrel on the New York Mercantile Exchange, the lowest close since May 27, 2005. Futures touched $51.80, the lowest intraday price since May 31, 2005. Prices are down 19 percent from a year ago.
Oil in New York has fallen 24 percent in the past year when measured in euros, 26 percent in British pounds and 14 percent in yen. ``This shows that price matters,'' Lynch said. ``Consumption is being held in check by prices that are still historically high. Gasoline demand was anemic even though the weather is nice.''
Anemic Demand
Implied demand for distillate fuel averaged 4.3 million barrels a day over the four weeks to Jan. 5, up 1.3 percent from a year earlier, the department said. Gasoline use averaged 9.3 million barrels a day, up 0.5 percent from 2006. Jet-fuel consumption averaged 1.6 million barrels a day, down 8.1 percent, according to the department, which tracks shipments from refineries, pipelines and terminals to calculate demand.
``Refineries continue to increase runs despite rising inventories,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``Inventories will keep rising, which will make the situation go from bad to worse.''
U.S. refineries operated at 91.5 percent of capacity last week, the highest since the week ended Sept. 22, yesterday's Energy Department report showed.
``The combination of November and December was the warmest on record in Boston,'' said Doug Webster, senior meteorologist with Meteorlogix LLC in Lexington, Massachusetts. ``I think you will see us turn toward more seasonable weather in the weeks ahead.''
Heating demand in the Northeast, the region responsible for 80 percent of U.S. heating-oil consumption, will be 13 percent below normal in the week ended Jan. 18, Belton, Missouri-based forecaster Weather Derivatives said.
OPEC Consultations
The Organization of Petroleum Exporting Countries, which produces about 40 percent of the world's oil, decided in the fourth quarter to cut output by 1.7 million barrels a day by Feb. 1. Al-Hamli said consultations among ministers about falling prices are ``ongoing'' after OPEC only met two-thirds of the reduction it committed to last month.
The 10 OPEC members with production quotas pumped 385,000 barrels a day more oil than their agreed target last month, according to Bloomberg data. OPEC had 3.69 million barrels spare capacity in December, the most since June 2003.
``OPEC is taking action to put a floor under prices,'' said Paul Crovo, a Philadelphia-based oil analyst for PNC Wealth Management. ``The cuts might not have the desired effect because spare capacity will grow.''
Qatar's oil minister, Abdullah bin Hamad al-Attiyah, said the group was bringing forward February cuts to stem falling prices, in an interview on Jan. 9. State-run Qatar Petroleum has already begun implementing its share of the group's reductions, he said. Qatar is OPEC's smallest producer.
Saudi Arabian Shipments
Saudi Aramco, the world's largest state oil company, informed South Korean refiners that supplies will be cut by between 11 percent and 14 percent next month, said refinery officials, who asked not to be identified. Refiners in Japan will receive between 10 percent and 12 percent below contracted volumes, officials said.
``The Saudi announcement is a case of too little too late,'' Barakat said. ``Unless the Saudis are ready to make bigger cuts and become a swing producer this market will continue to unravel.''
Futures touched a record of $78.40 a barrel on July 14 amid concern that fighting in Lebanon between Israel and the Islamic militia Hezbollah would spread through the Middle East. Prices also rose amid disruptions of supply from Nigeria and Iraq and concern Iranian shipments would be reduced because of the confrontation over the country's nuclear program.
Brent crude oil for February settlement fell $1.99, or 3.7 percent, to $51.70 a barrel on the London-based ICE Futures exchange, the lowest close since May 31, 2005. Futures touched $51.65 a barrel, the lowest intraday price since June 9, 2005.
To contact the reporter on this story: Mark Shenk in New York at
mshenk1@bloomberg.net .
Last Updated: January 11, 2007 15:33 EST
