Weather, OPEC big unknowns for oil costs
Oil prices fell Monday and a federal report showed retail gasoline prices held steady over the last week, but where prices go next depends mostly on the weather and this week’s OPEC meeting, analysts said.
Members of the Organization of the Petroleum Exporting Countries have been sending mixed signals about whether the cartel will cut production for the second time this year to keep oil prices from falling amid relatively robust crude oil stockpiles and forecasts for mild weather.
The group, which meets Thursday in Nigeria, agreed at a previous meeting to reduce oil output by 1.2 million barrels a day beginning Nov. 1. Analysts said that recent production cuts at OPEC had fallen short of the target, but that the oil-rich countries were nonetheless weighing an additional reduction.
“The two big ‘ifs’ we face, and both of them affect the price of gasoline, is what OPEC decides at the meeting and what will the timing of any cut be?” said James Williams, an energy economist based in London, Ark.
“OPEC is in a difficult situation,” said Andrew Lipow, a Houston-based oil industry consultant and former trader. “There is a lot of non-OPEC oil production that is coming on line ... and the demand forecast for next year is less than the rate of growth needed to absorb all of this new supply.”
On the other hand, ample U.S. oil inventories that worried OPEC are not as big anymore. With many refineries down for maintenance, the nation’s stockpile of oil has fallen steadily since early October, Williams said. What’s more, “it’s pretty dangerous to make a cut in the middle of winter, which is the peak demand period around the world.”
Mild weather so far this winter has put a damper on heating oil demand in the Northeast and kept crude oil prices from taking off. On Monday, a forecast for higher-than-normal temperatures helped push the price of light sweet crude for January delivery down 81 cents to $61.22 a barrel on the New York Mercantile Exchange.
Mother Nature is difficult to predict, however, and weather forecasts can change -- and that can lead to big swings in demand in the oil world.
“If we have a cold winter here and in Europe -- or either place -- that’s going to increase petroleum consumption, and that will lead to higher gas prices,” Williams said.
On Monday, the average retail price of self-serve regular gasoline in California was $2.504 a gallon, an increase of less than a penny in the last seven days, according to a weekly survey by the Energy Department. Nationwide, the average cost of gasoline fell by about half a cent to $2.293 a gallon.
In contrast, California’s diesel prices soared to a statewide average of $2.963 a gallon Monday, up more than 10 cents from the previous week, while the cost of diesel rose 0.3 cent nationwide, the government report showed. In Southern California, the average cost of diesel has already surpassed the $3-a-gallon mark, according to a separate price survey by AAA.
