NEW YORK (Dow Jones)--The likelihood of $100-a-barrel oil is off the boil - at least for the near term.
Crude oil futures prices on the New York Mercantile Exchange, which traded to a record intraday high of $99.29 a barrel just a week ago, slumped to as low as $90.33 on Wednesday. The 9%, or near $9, correction ratchets up tensions in the next week leading up to the Dec. 5 OPEC meeting in Abu Dhabi.
Much of the selloff has been spurred by expectations that the Organization of Petroleum Exporting Countries' ministers will agree to boost output by at least 500,000 barrels a day, putting pressure on the group to make good on that number or see prices rebound.
OPEC's de facto leader, Saudi Arabia's Oil Minister Ali Naimi, warned against predicting the outcome of the talks. Speaking at a conference in Singapore, he said that oil ministers are concerned about high prices, but repeated the similar themes that the global market is well supplied and global stockpiles are at "comfortable" levels. He blamed the weak value of the dollar, in which oil is traded internationally, speculators and fears of supply disruptions for pushing up prices.
But OPEC officials made similar statements heading into the Sept. 11 meeting, prompting expectations that output policy would be unchanged. As prices rose $5 a barrel or near 7% in seven days, ministers agreed to boost their output ceiling by 500,000 barrels a day, effective Nov. 1. Now, OPEC's next move may be directly linked to price direction heading into the meeting. Closer To $81/Bbl Than $100/Bbl At Wednesday's low of $90.33, Nymex crude prices are marginally closer to the $81-a-barrel level reached in a week after OPEC's last meeting than they are to the widely watched $100 mark nearly struck a week ago.
Nymex crude for January delivery settled Wednesday at $90.62, the lowest price since Oct. 30 and down $3.80 a barrel, or 4% from a day earlier. Prices are down 8%, or $7.56 from a record high settlement of $98.18 set Nov. 23. Despite the weakness, Wednesday's price is 49% above a year ago, while the year-to-date average of $70.55 is 5.9% ahead of last year.
Nymex gasoline futures fell for the third straight day, shedding 9.73c a gallon, or 4.1%, to $2.2757 a gallon, the lowest level since Oct. 30. Heating oil futures prices fell 7.96c, or 3%, to $2.5738 a gallon, the weakest since Nov. 13.
Analysts Paul Horsnell and Kevin Norrish at Barclays Capital in London said the tone for next week's OPEC talks will be set by "short-run price dynamics."
"If prices are sub-$90 per barrel next week and falling, our view is that OPEC will not increase the output ceiling in any significant fashion," they said in a research report.
Conversely, if prices stage a rally above $95, OPEC could increase its output ceiling by around 750,000 barrels a day, to its old OPEC-10 ceiling of 28 million barrels a day, they said.
OPEC's moves could be muddied if it acts on its stated aim to assign an output quota to Angola at the meeting, and even further if it decides to bring returning member Ecuador into the output quota system as well.
The 28-million-barrel-a-day output ceiling for 10 members would exclude Iraq, Angola and Ecuador. That output ceiling was in place from July 2005 to October 2006, when OPEC agreed to cut output for the first time in two years to boost prices, which were skidding under the weight of rising global stockpiles.
Still that outcome wouldn't address long-standing inequities in the quotas and would leave assigned levels for many countries far from their actual output levels.
Weekly U.S. oil inventory data released Wednesday showed that concerns about apparent declining demand and tight stocks may be overstated. Rebound In U.S. Demand In the four weeks to Nov. 23, U.S. oil demand averaged 20.875 million barrels a day, up 0.9% from a year ago, the Energy Information Administration reported. That level would suggest that November demand is on pace to being a record high for the month. The last record high for any month this year was set in May. The figure is strongest four-week demand figure since Sept. 14 and the biggest year-to-year growth level since Aug. 10.
Demand for distillate fuel (heating oil/diesel) are leading the increase and are both on target to hit record November levels.
Still, Michael Wittner, analyst at Societe Generale in Paris, said the apparent strong demand rise of 184,000 barrels a day in the last four weeks "is likely to be erased by (later) revisions."
Concerns over tight gasoline inventories eased in the week as the year-to-year deficit narrowed to just 3.7%, compared with 10.4% at the end of September.
Antoine Halff, at Fimat USA LLC in New York, said the U.S. data make a strong case for an OPEC output increase next week, because of a strong rebound in refining activity, particularly on the Gulf Coast.
Higher OPEC output "would help deflate prompt (crude oil) prices and flatten the futures curve," aiding refiners who face tighter refining margins.
"With OPEC's internal debate apparently shifting away from production management towards pricing policy and currency issues, agreement on an output hike may turn out to be uncharacteristically easy," Halff said.
The risk of a "steep run-up in prices if OPEC failed to act may provide ministers worried about demand security and the state of the economy with yet another incentive to boost output targets," he said.