8.40am Wednesday November 1, 2006
Oil fell below US$58 a barrel on Tuesday, deepening sharp losses from the previous session on easing tensions in Nigeria, ample US fuel stocks and lingering doubts over Opec output cuts.
US light crude fell 78 cents to US$57.58 a barrel by 1812 GMT, after trading down to US$57.05 earlier, the lowest level since Oct. 20. The drop followed losses of US$2.39, nearly 4 per cent, on Monday. Brent crude traded 83 cents lower to US$57.85.
Traders waited to see if Opec producers will adhere to an agreement to cut 1.2 million barrels per day from Wednesday.
“The dominant speculative sentiment remains overwhelmingly bearish,” Barclays Capital said. “Those on the short side who are expecting global economic weakness … and weak Opec cohesion are unlikely to change those core views in a hurry.”
Saudi Arabia, the world’s largest oil exporter, and the United Arab Emirates have told customers of supply cuts, but other Opec members such as Kuwait and Libya have yet to do so.
But Nigeria, which was the first to instigate the voluntary cuts, was expected to raise oil exports in December. Easing tensions in the Opec nation also added to bearish sentiment.
Western oil companies in Nigeria were free to resume production of 62,000 bpd at four oil pumping stations after striking a deal with protesters late on Monday. Villagers invaded the stations last Wednesday demanding contracts from the operators, Royal Dutch Shell and Chevron .
But as one problem subsided, another dispute was brewing.
Nigerian unions threatened to shut all oil fields operated by Italian oil company Agip, which produces 200,000 bpd in the country, unless it paid staff a security bonus. Attacks have cut Nigerian output by 500,000 bpd since February.
Analysts also attributed oil’s decline to slowing US economic growth and swelling fuel stocks.
“The US macro picture is the big elephant in the room, and left to grow could single-handedly sink many of the commodity bull markets that are still in place,” Man Financial said.
Oil’s 26 per cent slide since mid-July’s peak of US$78.40 has prompted funds to shift their money into other commodities in search of better returns. Gold prices hit a seven-week high and zinc in London touched a record on Monday.
US crude supplies were expected to have risen 2.6 million barrels last week, analysts said in a preliminary Reuters poll ahead of Wednesday’s inventory data.
Domestic distillate stocks, which include heating oil, were seen falling 1.3 million barrels, while petrol fell 1 million barrels.