Overproduction Fears Drag Oil Down
Oil futures prices closed sharply lower Friday, capping a bearish week brought on by reports of more OPEC overproduction.
On the New York Mercantile Exchange, contracts for October delivery of West Texas Intermediate, the benchmark U.S. crude oil, fell 29 cents per 42-gallon barrel to close at $14.79. Other contract months also dropped.
Analysts said the near-month contracts for crude oil slid to seven-week lows Friday, breaking a key support level of $15.10 a barrel, and dragging other contract months down.
Contracts for refined petroleum products also finished down sharply. Wholesale unleaded gasoline for October delivery fell 0.73 cent to finish at 43.98 cents a gallon. Contracts for other months also lost ground.
Wholesale heating oil for October declined 0.58 cent to 42.88 cents a gallon while other contract months also declined.
‘Market Growing Wary’
Analysts said the market eroded steadily all week after reports that some members of the Organization of Petroleum Exporting Countries were continuing to ignore production quotas, increasing the world’s oil supply and further weakening prices.
“The market continued to fall under pressure primarily on news that OPEC is continuing to overproduce,” said Richard Redoglia, a trader with Merrill Lynch Energy Futures. “The fact that the market reacted to new contract lows is not a good sign.”
Analysts said that uncertainty over the outcome of this week’s talks between OPEC Secretary-General Subroto and Iran and Iraq also pushed the market down.
“The market is definitely growing more wary over plans of Iran and Iraq” to end their Persian Gulf war, said Andrew Lebow, senior broker and analyst at E. D. & F. Man International Futures Inc.
But some analysts said that Friday’s higher U.S. unemployment figures indicating a possible economic slowdown also affected the oil market.
“There was less reason today to buy oil simply aside from what’s going on in the Middle East,” said Bill Byers, an analyst with Bear, Stearns & Co. “It was exacerbated by the unemployment numbers.”
Analysts said that if the market cannot produce a fresh rally, a wave of technical selling could push prices even lower next week.
“The market’s inability to hold $15 portends lower prices ahead,” said Lebow. “It’s going to turn more bearish.”