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Market Scan, vol.1 no.2
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2 June 2006

OPEC set to leave oil output unchanged
01.06.2006 23:18:32, AFX Europe Focus

CARACAS, Venezuela (AFX) -     OPEC, pumping near capacity, was set to leave
                                    its oil output unchanged Thursday, rejecting suggestions by Venezuela to prop up
                                    prices with a production cut.
                                    Oil ministers reached an informal agreement going into talks Thursday not to
                                    alter the current quota, said Qatari Oil Minister Abdullah al-Attiyah. Speaking
                                    shortly before OPEC's formal meeting, he said the market has more than enough
                                    supply but that "at this price level, OPEC won't cut production."
                                    However, Al-Attiyah cautioned that OPEC could change course by the time it
                                    meets in September.
                                    Indeed, analysts said the Organization of Petroleum Exporting Countries
                                    appears to have put aside concerns about rising global inventories of crude and
                                    weakening demand growth, at least temporarily, to focus on a more immediate
                                    worry: $70-a-barrel oil.
                                    "Most of the members are not comfortable with these prices," said Michael
                                    Lynch, president of Winchester, Mass.-based Strategic Energy and Economic
                                    Research. "They may expect the market to weaken in the second half of the year,
                                    but they still feel the price is too high right for them to cut production right
                                    now."
                                    Medley Global Advisors senior managing director Yasser Elguindi said most
                                    OPEC members "don't want to send any signals to the market that there's a floor
                                    at $70."
                                    While high oil prices mean big profits for oil producers in the near term,
                                    the longer-term risk is that they could cause a dropoff in economic growth and
                                    energy consumption and spur the development of alternative energy sources.
                                    Saudi Oil Minister Ali Naimi declined to confirm that an informal agreement
                                    had been reached on production, but described petroleum markets as "oversupplied
                                    and overpriced" just before he headed into the meeting.
                                    But Iran's oil minister, Sayed Kazem Vaziri Hamaneh, said he did not expect
                                    "any new decision" after the formal deliberations.
                                    Venezuelan President Hugo Chavez, a longtime price hawk, suggested trimming
                                    production and he repeated calls for OPEC to establish a minimum price of $50 a
                                    barrel.
                                    "There is enough oil on the market. We even believe there is an excess of
                                    oil on the market," Chavez said in a speech. "$50 is a fair price, but as a
                                    minimum."
                                    He said the price "ceiling would be infinity."
                                    Nigerian petroleum minister Edmund Daukoru said Chavez' idea was not
                                    formally proposed to OPEC, meaning it will not be considered in Caracas.
                                    Hamaneh, expressed support, saying through an interpreter that "it seems to
                                    me that OPEC can agree with the issue of the floor of $50."
                                    Crude prices slipped on Thursday, but hovered above $70 a barrel on the New
                                    York Mercantile Exchange, after Iran's foreign minister welcomed the idea of
                                    direct talks with the United States over its nuclear program, but rebuffed the
                                    U.S. condition that Tehran first suspend uranium enrichment.
                                    As many expected, Chavez also used the OPEC meeting as a political platform,
                                    demanding that the U.S. pull its troops out of Iraq and "end the threats against
                                    the Iranian people."
                                    Chavez, a harsh and frequent critic of Washington, called President Bush a
                                    "threat to the world" and predicted his U.S. "empire" would end within a
                                    century. And he criticized rich countries for complaining about high oil prices.
                                    Anthony Sabino, a law professor at St. John's University in New York, said
                                    the high prices reflect global politics.
                                    Given the war in Iraq, tensions over Iran and other factors, "there is no
                                    reason for OPEC nations to lower oil prices, which are the only true leverage
                                    these countries have," Sabino said. "This is particularly the case with
                                    Venezuela, given the growing animosity between Hugo Chavez and the U.S."
                                    Hosting OPEC, Chavez also recommended expanding the cartel to include
                                    Ecuador, which left the group 14 years ago.
                                    Venezuelan Oil Minister Rafael Ramirez said his country would back a
                                    proposal by Nigeria to add Sudan to OPEC's ranks. And Angola sent a delegation
                                    to the meeting, lobbying for membership in the group.
Oil prices jump as gasoline demand
                                    rises
01.06.2006 19:27:31, AFX Europe Focus

WASHINGTON
                                    (AFX) -     Crude-oil futures rose slightly Thursday, gaining
                                    strength from a rally in gasoline futures after weekly U.S. government data
                                    showed rising demand.
                                    The weekly report from the Energy Department's statistical division also
                                    showed rising oil and gas inventories, and increased output from the nation's
                                    refineries.
                                    Also on Thursday, OPEC appeared set to maintain its output quota of 28
                                    million barrels per day.
                                    Light sweet crude for July delivery rose 21 cents to $71.50 a barrel on the
                                    New York Mercantile Exchange. July Brent crude at London's ICE Futures exchange
                                    fell 68 cents to $69.73 a barrel.
                                    In its weekly report, the Energy Information Administration said gasoline
                                    demand over the past four weeks was 9.3 million barrels per day, up from 9.2
                                    million barrels a day a year earlier. In prior weeks, the four-week moving
                                    average for demand had been flat.
                                    BNP Paribas Commodity Futures broker Tom Bentz said the goverment report
                                    showed gasoline demand to be "better than it has been," even if it is up less
                                    than 1 percent, or below historical growth rates. Bentz said traders were also
                                    awaiting clarification from Valero Energy Corp. about the impact a lightning
                                    strike had on production at its Corpus Christi refinery.
                                    A Valero spokeswoman said she did not yet know the full extent of any
                                    damage, though a storage tank with "oil water" briefly caught fire.
                                    The Energy Information Administration said commercial inventories of crude
                                    grew last week by 1.6 million barrels to 345.5 million barrels, or 4 percent
                                    more than last year. Gasoline inventories increased during the same period by
                                    800,000 barrels to 209.3 million barrels, or 2.7 percent less than last year.
                                    The supply of distillate, which includes heating oil and diesel, rose by 1.8
                                    million barrels to 118.9 million barrels, or 8 percent above year ago levels.
                                    U.S. refiners ran their plants at 91.4 percent of capacity, an increase of
                                    1.7 percent from the week before, the agency said.
                                    However, with Thursday being the start of the Gulf of Mexico hurricane
                                    season, analysts have noted that there are still two refineries that have not
                                    fully recovered from last year's hurricanes.
                                    BP PLC's Texas City refinery, which has processing capacity of 475,000
                                    barrels per day, is only running at about half that rate, according to spokesman
                                    Scott Dean. And Murphy Oil Corp.'s refinery in Meraux, La., which has processing
                                    capacity of 125,000 barrels per day, is only beginning to restart production.
                                    Murphy spokeswoman Mindy West said the plant should be running at full capacity
                                    by the end of the month.
                                    In Caracas, Venezuela, major oil-producing countries are set to keep crude
                                    output unchanged at the OPEC meeting Thursday despite Venezuela's calls for
                                    cutting production. However, some cartel members hinted at the possibility of
                                    trimming supplies down the road.
                                    Antoine Halff, oil economist at Paris-based Fimat, said there was not a
                                    strong case for OPEC to tighten production.
                                    "Prices averaged at their highest levels in nominal terms in May, a fact
                                    that many OPEC oil ministers like to blame on geopolitics and financial
                                    players," Halff said. "But in fact, market fundamentals have shown signs of
                                    strength in recent weeks."
                                    Nymex gasoline futures advanced by almost a nickel to $2.145 a gallon, while
                                    natural gas futures rose 9.6 cents to $6.48 per 1,000 cubic feet.
                                    
Oil prices fall as U.S. inventories grow
01.06.2006 17:19:42, AFX Europe Focus

WASHINGTON (AFX) -     Crude-oil futures fell for the
                                    second day in a row
                                    Thursday after the U.S. government released data showing domestic oil and
                                    gasoline inventories rose last week.
                                        The weekly report from the Energy Department's statistical division also
                                    showed rising imports and increased output from the nation's refineries.
                                    Gasoline demand was up less than 1 percent over the past four weeks compared
                                    with a year ago.
                                        Also on Thursday, OPEC appeared set to maintain its output quota of 28
                                    million barrels per day.
                                        Light sweet crude for July delivery on the New York Mercantile Exchange fell
                                    42 cents to $70.87 a barrel. July Brent crude at London's ICE Futures exchange
                                    fell 59 cents to $70.70 a barrel on Thursday.
                                        In its weekly report, the Energy Information Administration said commercial
                                    inventories of crude grew last week by 1.6 million barrels to 345.5 million
                                    barrels, or 4 percent more than last year. Gasoline inventories increased during
                                    the same period by 800,000 barrels to 209.3 million barrels, or 2.7 percent less
                                    than last year. The supply of distillate, which includes heating oil and diesel,
                                    rose by 1.8 million barrels to 118.9 million barrels, or 8 percent above year
                                    ago levels.
                                        In Caracas, Venezuela, major oil-producing countries are set to keep crude
                                    output unchanged at the OPEC meeting Thursday despite Venezuela's calls for
                                    cutting production. However, some cartel members hinted at the possibility of
                                    trimming supplies down the road.
                                        Antoine Halff, oil economist at Paris-based Fimat, said there was not a
                                    strong case for OPEC to tighten production.
                                        "Prices averaged at their highest levels in nominal terms in May, a fact
                                    that many OPEC oil ministers like to blame on geopolitics and financial
                                    players," Halff said. "But in fact, market fundamentals have shown signs of
                                    strength in recent weeks."
                                        Nymex gasoline futures advanced by more than a penny to $2.11 a gallon,
                                    while natural gas futures rose 9.6 cents to $6.48 per 1,000 cubic feet.
                                    
 

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