Electricity tariff to go up by 2.3% next quarter

Published October 13, 2006

Oil falls to lowest level this year
Traders wait for Opec ministers to thrash out details of output cut

(LONDON) Oil prices fell to their lowest level this year yesterday before recovering after the US Department of Energy (DOE) reported higher stockpiles of crude oil and gasoline.

Sharp fall: In New York early yesterday, US crude was trading at US$57.33 a barrel, just off a session low of US$57.24, which was the lowest level since Dec 19, 2005

In a weekly survey of US inventories, the DOE said crude oil reserves surged 2.4 million barrels to 330.5 million in the week to Oct 6.

That was much more than the rise of 1.5 million barrels expected by energy traders.

The DOE said reserves of gasoline crept up 300,000 barrels to 215.4 million, compared with expectations for a fall of 450,000 barrels.

But inventories of distillates, used for heating oil and diesel fuel, tumbled 1.6 million barrels to 149.9 million.

After the release of the report, crude oil futures in New York rose 23 cents to US$57.82 a barrel.

Earlier, US crude was trading at US$57.33 a barrel, just off a session low of US$57.24, which was the lowest level since Dec 19, 2005, as traders waited for the Organisation of Petroleum Exporting Countries (Opec) to thrash out details of an output cut.

London Brent crude was 35 cents lower at US$58.30 at 9.38 am.

Opec ministers have agreed oil markets are oversupplied by around one million barrels per day (bpd), but have yet to decide on whether to make a reduction from a notional 28 million-bpd production ceiling or from actual supply of nearly 27.5 million bpd in September. They are also divided over whether to hold an emergency meeting to formalise what would be the Opec's first output cut since 2004.

'Speed is of the essence more than anything else - dithering to date has cost them credibility,' said Tobin Gorey, commodity strategist at Commonwealth Bank of Australia. 'Actual output will of course have to fall to have an impact on actual prices.'

Some analysts say prices could fall further with or without an output cut, as lower Opec production would increase spare capacity, meaning Opec were better able to cope with any unexpected supply disruption.
'Low spare capacity has been a big driver of prices this year,' said Eoin O'Callaghan of BNP Paribas.

He said there were also concerns about the health of the US economy, which could lead to reduced demand.

Already brimming inventories were expected to continue to build in the United States.

The DOE also reported that US gas stockpiles rose 62 billion cubic feet last week, reaching a record 3.389 trillion.

Natural gas prices dropped for a second day in New York after the report. The previous all-time peak for underground US storage was reached in November 2004.
'Inventories are currently at a sufficient level to move prices lower going into this winter,' said Robert Bernardi, president of Executive Energy Services LLC in Fair Haven, Michigan. 'The storage report we're referring to today, that week's demand was below normal.'

Gas for November delivery fell 14.4 cents, or 2.3 per cent, to US$6.006 per million British thermal units at 10:43 am on the New York Mercantile Exchange.

The price has slipped 7.1 per cent the past two days. - Reuters, AFP, Bloomberg

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