Oil Falls to 4-Year Low on OPEC Skepticism, U.S. Supply Gain

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Quote:Dec. 17 (Bloomberg) -- Oil fell to the lowest level in more than four years as OPEC failed to convince traders that the glut in crude will diminish and the U.S. government said supplies climbed for the 11th time in 12 weeks.

The Organization of Petroleum Exporting Countries agreed to cut output by 9 percent from current levels. Inventories rose 525,000 barrels to 321.3 million barrels last week, the U.S. Energy Department said today in a weekly report.

“It’s less than meets the eye,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “This may stem the bloating in stocks but isn’t enough to get rid of the surplus.”

Crude oil for January delivery declined $1.54, or 3.5 percent, to $42.06 a barrel at 1:45 p.m. on the New York Mercantile Exchange. Futures touched $40.20, the lowest since July 14, 2004. Prices have tumbled 72 percent from a record $147.27 on July 11.

OPEC’s 11 members with quotas will trim current production by 2.46 million barrels a day to 24.845 million barrels a day, the group’s president, Chakib Khelil, said in Oran, Algeria. OPEC has held four meetings in as many months.

“They are facing the distinct possibility of oil falling to $30 a barrel and even lower,” said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut. “They have to bring supply down further because they aren’t getting any help on the demand front until the second half of next year at the earliest.”

Larger Cut

The cut is larger than a 2 million-barrel reduction indicated yesterday by Saudi Arabian Oil Minister Ali al-Naimi.

OPEC’s rate of compliance with a previous output cut is more than 85 percent, al-Naimi told reporters today before the ministerial meeting that decided production targets.

“I think the market gave every signal that there had to be an additional cut of at least 2.5 million barrels if OPEC expected to bolster prices,” Armstrong said. “There is such a lack of trust when it comes to compliance that it was impossible to agree to what was needed. This lack of trust gives members every incentive to cheat on quotas.”

Russia cut oil exports by 350,000 barrels a day last month and may reduce supply a further 320,000 barrels a day next year, in collaboration with OPEC, if prices remain weak, Russian Deputy Prime Minister Igor Sechin told OPEC ministers during opening speeches at today’s meeting.

Quota Compliance

“I think the jury should still be out,” said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. “We will have to see their compliance. If they come close to their objective, we believe they will forestall a further decline in prices.”

Brent crude oil for February settlement rose 44 cents, or 0.9 percent, to $47.09 a barrel on London’s ICE Futures Europe exchange.

U.S. inventories may have gained because the oil market is in contango, where crude for future delivery is more expensive than near-month prices, encouraging stockpile increases. U.S. supplies have climbed 11 percent since Sept. 19.

“There is nothing bullish in these numbers,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “The OPEC announcement looks big on first glance but really isn’t. They are playing with smoke and mirrors.”

Supplies at Cushing, Oklahoma, where oil that’s traded in New York is stored, climbed 21 percent to 27.5 million barrels, the highest since May 2007.

“The big build at Cushing shows that in a contango market everyone who can is taking delivery, which makes it much more difficult for OPEC to hold it together,” Barakat said.

Some day I want to have these countries by the balls and squeeze the crap out of them like they're trying to do to us.

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We will Steve - - while they are foolish enough to drill out the gazoo and pump all their oil out and Feed the World Crude, we are sitting on ours.

A day will come when we are Back on Top as the Largest Oil holders on the planet.

Until then, I guess we'll just have to wait it out.

It will be nice though .....

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