Oil falls to six-week low as supplies surge more than forecast

Saudi Arabia

Saudi Arabia is pumping about 10 million barrels a day of crude and will produce more if customers demand it, a Persian Gulf official with knowledge of the matter said yesterday.

The ideal price of crude for OPEC is $100 a barrel and current prices are not supported by the fundamentals, the official said, declining to be identified because he’s not authorized to speak publicly. The oil market is well balanced and more supply is on the way, while demand growth won’t exceed 800,000 barrels a day in 2013, the official said.

Saudi Arabia is producing near the highest level in more than three decades. Its output has boosted supply from the Organization of Petroleum Exporting Countries to 1.63 million barrels a day more than the world needs this year, the group’s Sept. 11 monthly report showed.

Oil Minister Ali al-Naimi said Sept. 10 that global supply, demand and inventories don’t justify current prices. The desert kingdom has worked with the United Arab Emirates and Kuwait, fellow members of the six-nation Gulf Cooperation Council, to raise output as U.S. sanctions penalized customers buying Iranian oil, the official said.

Four-Month High

Oil climbed to the highest level in more than four months on Sept. 14 after the Federal Reserve’s plan to buy mortgage securities bolstered economic optimism and on concern that protests against a film seen as insulting to Islam may lead to supply disruptions in the Middle East and North Africa.

“There was initial euphoria about the Fed move that sent the market higher last week,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “The economic picture isn’t healthy enough to support prices near triple digits.”

The Fed announced on Sept. 13 that it would make additional purchases of debt in a third round of so-called quantitative easing. The move followed a European Central Bank bond-buying announcement on Sept. 6.

“The fundamentals aren’t supportive,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Prices were getting uplift over the last couple weeks from the EU and U.S. quantitative easing, the anti-Islamic video and maintenance in the North Sea. These three factors are no longer enough to prop up the market.”

Daily exports of the four crude grades comprising the Dated Brent benchmark will rise 24 percent in October, the biggest monthly increase in two years, as offshore maintenance work ends, according to data compiled by Bloomberg.

Electronic trading volume on the Nymex was 695,573 contracts as of 2:37 p.m. Volume totaled 545,299 contracts yesterday, 1 percent higher than the average of the past three months. Open interest was 1.61 million.

Bloomberg News

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