U.S. Oil Briefly Tops $19 as OPEC Adheres to Quotas
U.S. oil prices topped $19 a barrel Tuesday for the first time in over a year on signs that OPEC is adhering to a new production accord, but they later fell back slightly due to profit taking.
In volatile trading, the February contract on the New York Mercantile Exchange rose as high as $19.21 a barrel, its highest since November, 1987, but then retreated. It ended the day at $18.95, with a gain of 7 cents.
The members of the Organization of Petroleum Exporting Countries were subject to a new output limit of 18.5 million barrels daily beginning Jan. 1, as the cartel tried to end the high production that had sent world oil prices tumbling. In December, the OPEC members produced an estimated 22.8 million barrels daily.
“The market is higher and OPEC is the underlying cause,” said Peter Beutel of Elders Futures Inc.
Optimism on Talks
The pact, which replaced lower limits that were widely ignored, was adopted in late November. Since then, prices have risen nearly $4 a barrel.
Beutel said OPEC production fell to around 19.35 million barrels daily in the first half of January.
He said the market’s strength also reflected optimism toward talks between OPEC and non-OPEC producers set for later this month.
But the surge above $19 seemed to make some traders nervous. Stephen Platt, analyst at Dean Witter Reynolds, said the recent rally in prices made the market vulnerable to some profit taking.
“It was a classic correction after a fundamental move up,” said Madison Galbraith, broker at Merrill Lynch Futures. “Enough people took profits to keep a lid on the market around $19 a barrel,” he said.
Among other grades of oil, North Sea Brent crude was up about 20 cents at $17.20 a barrel for February delivery on the spot market, where actual barrels of oil are traded.
Gasoline Prices Higher
In addition to the signs of OPEC restraint, the market has also been buoyed by strong demand for oil products.
The government’s Energy Information Administration reported Monday that total products supplied in the four weeks ended Dec. 30 were up 4.9% from a year ago.
The brisk sales pace was expected to be carried through to the first quarter.
Heating oil failed to share in the enthusiasm for crude, however. The February contract was down 0.11 cents at 53.05 cents a gallon, due to relatively warm temperatures in much of the Northeast.
Gasoline prices rose, with the February contract for unleaded gas up 0.19 cents at 51.10 cents a gallon.
Contracts that expire in the summer rose sharply. A number of states in the Northeast are due to impose rules in the summer on pollution from gasoline vapors, and analysts say the new rules will reduce the amount of gasoline that can be yielded from each barrel of crude oil.
The May, June and July gas contracts all rose the 2-cent daily limit allowed, closing at around 54 cents a gallon.