Crude Oil Falls as OPEC Faces Glut
Crude oil on Thursday had its biggest decline since the war in Iraq started after the International Energy Agency said global oil production last month rose to a record 80.3 million barrels a day, spurring concern that a glut is forming.
Kurdish and U.S. forces were reported to be gaining control of key oil production areas in northern Iraq, lessening chances that the war will cause lasting damage to Iraq’s oil industry.
Crude oil May delivery fell $1.39, or 4.8%, to $27.46 a barrel on the New York Mercantile Exchange. It was the biggest one-day decline since March 19 and the lowest closing price since March 21. Oil has plunged 27% from its recent closing high of $37.83 on March 12.
Saudi Arabia and Russia, the world’s top crude exporters, increased output last month as Iraqi production was disrupted. Chakib Khelil, Algeria’s oil minister, said there is a daily production surplus of 2 million barrels.
OPEC officials have called a meeting for later this month to discuss production cutbacks aimed at avoiding a glut.
Russia is not a member of the Organization of the Petroleum Exporting Countries.
“OPEC is worried, and with good reason,” said Jim Steel, director of commodity research at Refco Inc. in New York. “Production is up and it will be difficult to get the different nations to reduce output by enough to support prices.”
The Paris-based IEA, which represents the U.S. and 25 other industrialized nations, estimated second-quarter consumption at 76.4 million barrels a day, 2 million less than the first quarter. Demand will be limited by a sluggish economy in the U.S., the biggest oil consumer.
The energy agency’s report “shows that there is an awful lot of oil out there,” said Kyle Cooper, a Citigroup Inc. analyst in Houston. “Even if the Saudis cut production by 1 million barrels, supplies will grow. Nigerian production is increasing and there could still be further increases from Venezuela.”
U.S.-led forces are in Baghdad and tightening control of Iraq, bringing closer a return of the nation’s oil sales. The city of Kirkuk, in the northern oil region, fell Thursday, the British Broadcasting Corp. said.
“It looks likely that the northern oil fields will soon be secure,” said Tom Bentz, an oil broker at BNP Paribas Commodity Futures Inc. in New York. “It’s one more threat that is rapidly disappearing.”
Some OPEC officials expressed concern that Iraq, a founding member of OPEC and whose reserves are second only to Saudi Arabia’s, may leave the cartel after the war.
