Oil Prices Slide More Than $2.50 a Barrel

[FDJ2]

Associated Press
Update 12: Oil Prices Slide More Than $2.50 a Barrel
04.27.2005, 03:25 PM

Oil prices dropped more than $2.50 a barrel Wednesday after U.S. government data showed a large build in domestic crude inventories and President Bush urged construction of new oil refineries.

Light, sweet crude for June delivery fell $2.59 to $51.61 a barrel on the New York Mercantile Exchange. Unleaded gas futures plunged 8.32 cents to $1.5419 a gallon, while heating oil futures fell 3.39 cents to $1.474 a gallon.

The U.S. Energy Department said Wednesday that the inventories of crude oil in the largest consuming nation grew by 5.5 million barrels last week to 324.4 million barrels, or 9 percent above year ago levels.

Unleaded gasoline supplies shrank by 300,000 barrels to 211.3 million barrels, or 4.6 percent above year ago levels. The inventory of distillate fuel, which includes diesel and jet fuel, fell by 1.4 million barrels to 102.6 million barrels, or 0.4 percent above year ago levels.

Tom Bentz, a broker at BNP Paribas Futures in New York attributed the selloff to shifting sentiment among traders about the U.S. supply of gasoline ahead of the summer.

Last week, concerns about refinery glitches put upward pressure on the entire oil complex.

"But when you really look at it," Bentz said, "inventories are still 5 percent above the historical five-year average. The market may have gotten a little overexcited."
Bentz said prices could be headed below $50 a barrel before too long.

In remarks to small business leaders, Bush urged using closed military bases as sites for new oil refineries. The Energy Department is being ordered to step up discussions with communities near such bases to try to get refineries built.

"We know we have a capacity problem," White House press secretary Scott McClellan said Wednesday.

Prices had been falling since the start of the week, when Bush called on Saudi Arabia's Crown Prince Abdullah to expand production, in a bid to ease U.S. gasoline prices that have shot above $2.20 a gallon.

Analysts say the Bush-Saudi meeting was a signal that both sides recognized that current high prices needed to be addressed, thus sending prices downward.

Saudi Arabia has outlined a plan to increase production capacity to 12.5 million barrels a day by 2009 from the current 11 million limit. Saudi Arabia now pumps about 9.5 million barrels daily. If necessary, Saudi Arabia says it will eventually develop a capacity of 15 million barrels a day.

Global petroleum markets aren't short of crude oil, Iran's oil minister said Tuesday.

"I think the market is oversupplied," Bijan Namdar Zangeneh told reporters during a natural gas conference in Port-of-Spain, Trinidad. "We have no difficulties on the supply side."

Iran is one of 11 member countries of the Organization of Petroleum Exporting Countries. Officials from two other OPEC members, Saudi Arabia and the United Arab Emirates, have said a global lack of refining capacity, not a shortage of crude oil, is to blame for an almost 50 percent surge in world prices over the last year.

OPEC President Sheik Ahmed Fahd Al Ahmed Al Sabah, however, said last week that the organization would automatically increase its total output by 500,000 barrels a day in May in response to an expected increase in demand.

Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures, said the Bush meeting with the Saudi prince, and high crude oil inventories has made current market sentiment very bearish.

"If we don't see any supply disruptions, we might even see $45 in the gasoline season," he said.



Associated Press writers Brad Foss in New York and Wee Sui Lee in Singapore contributed to this report.

 

[lowecur]

Tim Evans chimes in again at BusinessWeek

APRIL 27, 2005

OIL SPECIAL REPORT

Oil: A Bubble, Not a Spike?

Analyst Tim Evans thinks the crude rally isn't justified by fundamentals and expects prices to "fall hard" soon to $26 to $30 a barrel

[font=arial,helvetica,univers]

While the rest of Wall Street just can't seem to get enough of the oil market, energy analyst Tim Evans isn't afraid to go against the tide. Evans, a senior analyst at IFR Energy Services, a division of Thomson Financial, thinks that the current run-up in oil prices is much like the Internet bubble of the late '90s. While other analysts are calling for crude to hit upward of $100 per barrel in the next few years, he believes the bubble will burst in the next several months, bringing prices back down into the upper-$20s range.

Evans recently spoke with BusinessWeek Online reporter June Kim about costly crude, what's behind it, and why rising prices will reverse course soon. Edited excerpts of the conversation follow:

Q: Where do you see oil going?
A: [Recently], we saw the highest level of commercial crude oil inventory in the U.S. since June, 2002. Then, we were trading in the range of $26 to $30 per barrel. The current physical fundamentals, not even projecting to a greater surplus down the road, are consistent with a $26 to $30 price.

We first got to $50 at the end of last September after Hurricane Ivan. We've got an all-time high price without a physical shortage.

Q: Then what's driving the uptick in prices?
A: We don't have a physical bull market, but we do have a financial bull market. The measure of the financial market is the open interest on the New York Mercantile Exchange. The futures market is 72% larger than it was 18 months ago. Over that same period, the physical market is maybe 5% larger. What you have on the financial side is a bunch of money being thrown at the energy futures market. It's just pulling in more and more cash. That's the side of the market where we have runaway demand, not on the physical side.

DOE [Energy Dept.] crude inventories have been rising since last September. If demand is outpacing supply, how can inventories rise?

Q: But there's a limited global supply and rising demand in the U.S. and China?
A: First, oil supplies are always finite, and oil reserves are always finite. That's not really headline news.

In terms of rate of growth, world oil demand grew last year by 3.4%. Yes, 3.4% was more yearly growth than we had seen in quite some time. [But] going back to the '50s and '60s, world oil demand during that era was growing an average of 9% per year. We didn't have oil-price shocks then.

Part of our fear really dates back from 1998 and 1999, when we had oil prices down at $12 per barrel. Those prices choked off investment in production capacity. That was the bust part of the cycle, and we're now in the boom part of the cycle. But it's still a cycle. The believers in the long-term steady march to $105 are basically making that it's not a boom-and-bust cycle anymore.

Q: Do you think $105 per barrel is probable?
A: We always say it can't be ruled out, but if we were to put a probability or expectation on it, I think...maybe there's a 5% chance that Saudi Arabia slides into the Red Sea and there's a run on oil supplies.

We have to get to $60 before we can get to $105. We haven't gotten to $60 yet.

Q: Do you consider this a bubble -- like the tech bubble of the late '90s?
A: I do. Some of the bullish analysis specifically warns people away from traditional methods of valuation. They'll say things like, "Inventory levels are no longer relevant, or a meaningful measure." Except that inventories levels are an objective measure. It's not a matter of opinion -- it's factual.

Q: Doesn't the psychology of market account for some of the run-up?
A: In the short run, it's perception that drives markets. In the longer run though, the physical supply and demand, the physical reality, ultimately determines what a sustainable equilibrium price is.

Q: When do you think oil will hit the $26 to $30 range?
A: The next two to three months are going to see oil prices fall hard. I think the market is teetering now. OPEC is still increasing production -- they increased quotas half a million barrels per day for April. And Saudi Arabia has allocated additional oil in its May sales program.

At the same time, second-quarter demand for crude oil tends to fall by something on the order of 2%. The market basically sees that drop because we're no longer heating the Northern Hemisphere. Right in front of us, we have supply that's still growing, demand that's going to step down, and inventories that are already at comfortable levels.

If we could just calm down enough to look at the inventory numbers, we actually have 6% more gasoline inventory than we did at this time last year, and we have 5.2% more stock of crude oil on average than the last five years. It's a high level of inventory as a cushion against possible supply disruption. [/font]

 

[FDJ2]

Analyst Tim Evans thinks the crude rally isn't justified by fundamentals and expects prices to "fall hard" soon to $26 to $30 a barrel

That would be nice. The price has been driven up by speculators, but the fundamental reality is that the supply and demand don't justify $50+ oil. Hopefully the crude oil bubble will burst sooner, rather then later.

 

[Focus]

Like it or not, You better get use to $50+ /bbl oil

Im just wondering how anyone could believe that prices are not justified....???

1. Worldwide demand is increasing exponentially with GNP
2. Wealth in underdeveloped Nations increasing demand
3. US Dollar is in deflationary cycle (lets hope its a cycle)
4. China alone had unparalleld growth of 9% 1st QTR 2005
5. No more Refineries being built in the USA
6. Pumping the Oil out of the ground cost more the deeper you go. (thats after you find it first)
7. Inflation..............

Man, Im sorry to say the list goes on and on...Check the back of your highschool year book and see how much a gallon of Milk cost when you graduated....Im not sure what your smoking but I bet that even cost more than it did when you graduated....Nice thought though

Solution: Increase Ticket Prices/ Reduce Seats through Consolidation

 

[FDJ2]

Im just wondering how anyone could believe that prices are not justified....???

Try these reasons why a 50% increase in the price of oil is not justified:

1. In terms of rate of growth, world oil demand grew last year by 3.4%.

2. Inventories of crude oil in the largest consuming nation grew by 5.5 million barrels last week to 324.4 million barrels, or 9 percent above year ago levels.

3. Inventories are still 5 percent above the historical five-year average.

4. "Global petroleum markets aren't short of crude oil, Iran's oil minister said Tuesday. "I think the market is oversupplied," Bijan Namdar Zangeneh told reporters during a natural gas conference in Port-of-Spain, Trinidad. "We have no difficulties on the supply side."

5. Saudi Arabia has outlined a plan to increase production capacity to 12.5 million barrels a day by 2009 from the current 11 million limit. Saudi Arabia now pumps about 9.5 million barrels daily.

6. DOE [Energy Dept.] crude inventories have been rising since last September. If demand is outpacing supply, how can inventories rise?

7. Second-quarter demand for crude oil tends to fall by something on the order of 2%. The market basically sees that drop because we're no longer heating the Northern Hemisphere. Right in front of us, we have supply that's still growing, demand that's going to step down, and inventories that are already at comfortable levels.

8. We actually have 6% more gasoline inventory than we did at this time last year, and we have 5.2% more stock of crude oil on average than the last five years.

 

[dtfl]

The price has been driven up by speculators, but the fundamental reality is that the supply and demand don't justify $50+ oil.

AMEN!!!!!! Like real estate in FLORIDA!

I agree that demand is increasing...but not at the rate the price of oil is. It's speculation and lazy moms in their Aircraft carrier sized SUVs. I like SUVs..but do you need the Abraham Lincoln to carry your kids in? NO.
ANd yes I drive a car that gets good mileage

 

[Juvat]

Sorry, but I can't help laughing at all you pilots-turned-oil-experts. It's like the Lowecur disease is spreading. Thanks for the humor.

 

[Focus]

You are basing your numbers on yesterdays news. Every Wednesday the US reports its Oil Supplies....They go up and down every week....Last week they were down....alot goes into this..

Consumer sentiment is currently at a very low level...The US typically stock piles inventories going into driving season.....Growth continues worldwide and although the United States is in the early stages of trying to rely less on Imported Oil the fact remains that this will take years to come to fruition. Refineries can only refine so much oil per day in our country...This is where we have our bottleneck domestically....You will read alot of things over the next few weeks concerning how well were supplied and ready for the driving season...

Historically, this is the time of year that we ramp up our reserves...Fact remains, we will burn through that in no time....Futures will come down as they are now but I definately dont see them staying below 50 for very long...We will be back to 55-60 this summer..I could give you all kinds of supporting information but quite frankly I think you would be better off doing your own research...Its out there and you already posted some of it...Read between the lines and you will see......Only time will tell who is correct....My money says the price goes up. Im not an expert but I have been watching the trading pretty closely over the last year...good luck to all

 

[some_dude]

My prediction is that just when the major airlines finally get their hedges in place at $50/barrel, oil will drop to $25!

 

[skykid]

Sorry, but I can't help laughing at all you pilots-turned-oil-experts. It's like the Lowecur disease is spreading. Thanks for the humor.

It's funny enough to watch the experts themselves get it wrong time after time. There are experts making a case for $100 a barrel, and other experts making a case for $30 a barrel. Apparently they get paid by someone for their opinions, which I consider to be equally worthless. I will not be surprised if oil is $80/barrel this time next year, or $30/barrel. About the only thing you can do about it is get in an industry that can actually pass this cost on to the consumer, like the $41.00 FedEx First Overnight I just sent.