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The Commodities Report

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Brent returns to 60−65$/b range

Thu, Nov 6 2008, 10:45 GMT
by KBC Market Research Desk

KBC Bank

Headlines

• Platinum higher as Anglo Platinum eases for this year’s production forecast

• Higher London stockpiles eases copper price

Brent and Distillates

On Tuesday oil rose as Saudi Arabia announced it was cutting production by about 5 % to some of its customers in Europe and the US after OPEC agreed two weeks ago to lower its official output limit by 1.5mln.b/d.
However, yesterday crude corrected its gains and Brent returned to 60-65$ range even when the U.S. Department of Energy reported the country’s oil inventories were flat last week, against forecast of a 1.1mln.bbl increase, to 311.9 mln.bbl.
The drop in U.S.oil demand also slowed down, although marginally. Total oil consumption in the past four weeks was down 6.7 %, to 19.1 mln.b/d, improving October and September’s figures of a 9% drop.

Oil prices will rebound to more than 100$/b as soon as the world economy recovers, and will exceed 200$/b by 2030, the International Energy Agency will publish it in its report next week. “While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over,” the report states.
IEA has doubled its long-term price expectation from last year’s 108 $/b for 2030.
The IEA’s World Energy Outlook has come to this conclusion largely because it believes companies will struggle to pump enough new oil to offset the steep production declines of the world’s older fields.

Saudi Aramco is reviewing some of its long-term projects following the sharp decline in oil prices and a dramatic slowdown in demand growth for crude, a senior official said on Tuesday. Nevertheless, Aramco’s short-term projects are on track and the kingdom may reach its target of increasing production capacity to 12.5 mln.b/d by the end of next year. But the development of the Manifa field, which was intended to add another 900 kb/d by 2011, is under review. Only five months ago, Saudi Arabia said it would add an additional 2.5 mln.b/d of capacity, on top of the 12.5 mln, if needed.

Ural’s crude exports in November should be cut by cca 7 mln.bbl, a trading source announced. Most of the cuts will take place in the Black Sea particularly from the Ukrainian port Yuzhny, according to the source. Total cuts amount to between 940kt (i.e.6.9 mln.bbl).

Russia has bought the 7% stake held by the government of Oman in the Caspian Pipeline Consortium (CPC), a spokesman with Russian oil pipeline monopoly Transneft said Wednesday, bringing its total share of the CPC to 31%. He was not able to say when the stake would be transferred to Transneft, which currently manages Russia's 24% stake in the pipeline project. CPC is a privately owned, Chevronled crude pipeline that currently pumps around 670 kb/d from Kazakhstan through Russia to the port of Novorossiisk on the Black Sea. Also BP wants to pull out of the CPC over continued disagreements on the conditions for the expansion of the 33 mln.t/y pipeline system.

On Wednesday Swiss bank UBS issued pessimistic short-term forecasts for the energy, minerals and metals markets. The bank for example expects oil prices would average 60$/b in 2009 and 75$ in 2010.

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Published on  Thu, Nov 6 2008, 12:19 GMT