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Oil Prices Drop As Demand Eases

Posted on: Monday, 19 September 2005, 18:00 CDT

NEW YORK -- Crude-oil prices dropped to $63 a barrel Friday after OPEC reaffirmed traders' belief that the high retail price of gas is driving away consumers.

Light, sweet crude oil for October delivery fell $1.75 to settle at $63 a barrel on the New York Mercantile Exchange.

Heating oil slumped more than 7 cents to $1.8370 a gallon, and gasoline dropped more than 11 cents to settle at $1.7851 a gallon.

October Brent crude futures on London's International Petroleum Exchange fell $1.85 to settle at $61.81 a barrel.

"Everyone is lowering their expectations for demand," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. "It's taken the urgency out of the market."

Crude-oil prices are 1.7 percent off week-ago levels, while heating oil is 3 percent lower and gasoline is down nearly 9 percent. Gas prices at the pump are slowly following suit -- the average price of a gallon of unleaded gas was $2.89 on Friday, down from $2.92 the day before and the all-time high of $3.06 reached Sept. 5, according to Oil Price Information Service.

In its latest projection, the Organization of Petroleum Exporting Countries said world oil-demand growth would fall by between 150,000 to 200,000 barrels a day for the remainder of 2005 and into 2006 as high prices force consumers to reduce purchases of petroleum products.

The 11-member cartel, which pumps a third of the world's daily diet of 84 million barrels of crude, meets Monday to decide on future output.

Oil companies have bought 11 million barrels of crude from the U.S. government's reserve, the Energy Department said Wednesday. That's only about a third of what was offered after Hurricane Katrina hit, which suggests that the industry is confident that crude supplies are adequate.

Over 56 percent of daily oil production in the Gulf remained blocked as of Friday -- about 35 percent of which is shut in due to problems with onshore infrastructure, the Minerals Management Service said. About 34 percent of gasoline production is shut in.

Although crude-oil prices are well below the record of $70.85 briefly hit on Aug. 30, they remain about 50 percent higher than a year ago.

When the American public's buying patterns return to normal as the Gulf region recovers from Katrina, Silliere said, bullish sentiments could return to the market.

"Demand loss had a lot to do with sticker shock," he said.

President Hugo Chavez of Venezuela -- an OPEC member and the world's fifth-largest oil exporter -- said Thursday at a U.N. summit in New York that prices could rise to $100 per barrel because members of the cartel are pumping at near capacity and oil reserves are running out.

But Julian Lee, energy analyst at the London-based Center for Global Energy Studies, said Chavez's forecast wasn't receiving much credit in the market.

"The $100 barrel price is very much wishful thinking on Venezuela's part," Lee said. He added, "Venezuela does not produce enough to meet its own quotas, so the only upside for the country is high prices."

Associated Press writer Edith Balazs in Budapest, Hungary, contributed to this report.

Update

Previously: Crude-oil prices briefly hit a record of $70.85 a barrel Aug. 30 and remain about 50 percent higher than a year ago.

What's new: Prices dropped to $63 a barrel Friday.

What's next: OPEC expects world demand to fall by between 150,000 to 200,000 barrels a day for the remainder of 2005 and into 2006.

Source: Columbian

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