LOCAL  OIL  PRICES  EXPECTED  TO  DROP  FURTHER

MANILA, OCTOBER 5, 2006
(STAR) Local fuel prices are expected to go down further as international crude prices continued to slide, ending at a seven-month low below $59 per barrel yesterday.

The Department of Energy earlier said it expected gasoline prices to go down by as much as P2 per liter this month if the downtrend in international crude prices continued.

Early this week, local oil companies rolled back the price of liquefied petroleum gas or cooking gas by P2 per kilo or P22 per standard 11-kilo cylinder.

Global oil prices continued to soften on dipping demand and expanding supplies. A mild Atlantic hurricane season also edged out geopolitical concerns. Fears over the Atlantic hurricane’s effects on oil and natural gas production in the Gulf of Mexico have since eased.

The recent plunge in crude has dragged down the retail price of gasoline in the US, which now averages $2.31 a gallon (61 cents a liter) nationwide, according to the US Energy Department. Analysts say pump prices could drop by another dime or so in the weeks ahead. The US is the biggest oil consumer.

Several analysts said they expect Nymex oil to continue falling in the near-term, perhaps as low as $55.

"For the next three months, there is nothing in the fundamentals that is likely to support (higher) prices except an OPEC production cutback," said Michael Lynch, director of Strategic Energy and Economic Research Inc. of Winchester, Massachusetts.

Crude oil for November delivery slid $2.35 to settle at $58.68 a barrel on the New York Mercantile Exchange – the lowest close since Feb. 16. Oil prices declined by $1.88 on Monday.

In London, Brent crude futures on the ICE Futures exchange fell $2.02 to $58.43 a barrel.

Surprisingly, recent repeated calls by some Organization of Petroleum Exporting Countries (OPEC) members to cut output also may be weighing on crude futures, as it may suggest growing desperation by oil producers to stem a near 25-percent decline in prices in less than two months.

Any meaningful action by OPEC would have to be taken by Saudi Arabia, the world’s largest producer, Lynch said. That said, trimming output could also backfire by signaling to a market worried about tight supplies that the world finally has production capacity to spare, he added.

Indeed, the perception that a supply cushion exists may already be taking hold. Analysts estimate that worldwide surplus production capacity stands at 2.5 million barrels a day, or three percent of daily demand.

Societe Generale commodities analyst Mike Guido said that pension, mutual and hedge funds are not out buying energy futures as heavily as they have been in recent years, in part because stock market gains have been improving, but mainly because supply concerns have dissipated.

The US Energy Department said last week that US inventories of crude oil stood at 324.8 million barrels, or five percent more than last year.

US fuel supplies are "more than ample," he said. While some OPEC members have attempted to shore up prices by calling for a cutback, or threatening to reduce output on their own, Guido said these moves have not had their intended effect.

"It is telegraphing to the market that they’re becoming more desperate," Guido said.

On Friday, Venezuela said it would reduce oil output by 50,000 barrels a day to try to stem the recent fall in crude prices.

Nigeria has said it intends to cut oil exports by 100,000 barrels, an amount the state-owned oil company described as a routine seasonal reduction.

Combined, these cuts amount to less than one percent of daily global demand.

Moreover, the cartel’s largest producer, Saudi Arabia, has given no indication it is imminently seeking additional reductions in output, and that is more telling to the market, analysts said.

The Saudis have gradually scaled back their output from a peak of 9.6 million barrels per day in mid-2005, to about 9.1 million barrels a day now, according to Eurasia Group analyst Greg Priddy.

Priddy said in a report that the alleged production cuts by Nigeria and Venezuela lack credibility; he said Saudi Arabia and Kuwait are the OPEC members whose actions are worth watching.

With economic growth slowing and oil supplies rising, energy markets have become less jittery about geopolitical tensions, such as the diplomatic standoff between Iran and the West over Tehran’s nuclear ambitions. For much of the year, fear about potential sanctions against Iran, and possible retaliatory actions by OPEC’s No. 2 supplier, had gripped the market.

But Guido said energy traders have grown weary of betting on "what if" scenarios.


Chief News Editor: Sol Jose Vanzi

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