Steep Decline in Price of Oil Comes to a Halt
The free fall in oil prices ended Monday on a spate of ominous developments, including a deadly attack on a U.S. consulate in Saudi Arabia and reports that OPEC might cut production this week.
But the price rebound was a modest 1%, in contrast to the summer, when acts of terrorism and political unrest sent oil soaring.
“It’s amazing how sanguine it’s been,” said Seth Kleinman, an analyst at consulting firm PFC Energy in Washington. His explanation: Traders are more confident that global oil supplies are ample enough, at least for the moment, to withstand small disruptions in shipments.
“There is still plenty of crude available right now,” he said. So much so, in fact, that speculation is mounting that the Organization of the Petroleum Exporting Countries might consider reducing its output to prevent prices from tumbling further. OPEC, which pumps about one-third of the world’s oil, meets Friday in Cairo.
On Monday, light crude for January delivery gained 44 cents to $42.98 a barrel on the New York Mercantile Exchange after having plummeted $6.90 a barrel, or 14%, last week. Heating oil rose 1.38 cents to $1.25 per gallon and gasoline futures slipped to $1.13 per gallon, down less than a penny, on the Nymex.
Retail gasoline prices, meanwhile, continued their steady slide in response to the recent declines in crude oil prices.
The average pump price for self-serve regular in California fell 4.4 cents to $2.192 a gallon, its seventh straight weekly decline, the Energy Department’s Energy Information Administration said in its weekly survey. A few Southern California stations are again selling gas for less than $2 a gallon.
California’s average pump price is now 21 cents, or 8.7%, below the record high $2.402 a gallon reached Oct. 18. The latest per-gallon price is still 54 cents higher than a year earlier. The nationwide average price fell 3.4 cents in the latest week to $1.911 a gallon, the energy information agency reported.
Oil-shortage fears were rekindled Monday after Islamic militants threw explosives at the gate of the U.S. consulate in Jidda, Saudi Arabia, then forced their way into the building and prompted a gun battle. Several people were reported killed.
Lingering production problems at an oil field in the North Sea also helped lift prices, as did a protest in Nigeria that closed production on two oil platforms there.
But the looming OPEC meeting dominated the markets and offered mixed signals for traders.
The Platts energy news service quoted OPEC’s acting secretary general, Maizar Rahman of Indonesia, as saying the 11-member group wanted to ensure that oil supplies don’t build so quickly that they trigger another price collapse.
His comments were “a sign the group may weigh cutting output when its oil ministers meet this week,” Platts said. Yet last week Rahman was quoted elsewhere saying the chances of a production cut were slim. OPEC’s current official output, which excludes Iraq, is 27 million barrels a day.
Oil prices soared this year amid recurring fears that supplies wouldn’t keep pace with rising demand for oil, peaking at $55.17 a barrel in October.
Those concerns have eased as U.S. inventories of crude oil and distillate fuels -- which include heating oil -- have swelled in recent weeks, sending prices sharply lower. Still, oil prices remain about 40% higher than a year ago.
Regardless of whether OPEC cuts its formal production levels Friday, many analysts see the cartel hiking its so-called target price range to between $30 and $40 a barrel.
If so, OPEC then would raise or lower its output to keep prices within that band.
The target, reflecting prices for a basket of seven grades of crude oil, is at a now-obsolete $22 to $28 a barrel.
OPEC members also are anxious to maintain a higher floor for crude prices because of the U.S. dollar’s decline against other major currencies. Oil trades are denominated in dollars, so OPEC’s members have seen the value of their oil sales decline even as they’re enjoying the windfall from this year’s surge in prices.
