Oil Drops Below $60, OPEC Unlikely to Cut Production

MoneyNews
Monday, March 12, 2007 | VIENNA, Austria -- Oil prices fell below $60 a barrel Monday on forecasts of above-normal temperatures in the United States, a major consumer of heating oil and gasoline.

Indications that OPEC would decide against further production cuts at its meeting Thursday also exerted a downward push on the market.

Light, sweet crude for April delivery on the New York Mercantile Exchange dropped 70 cents to $59.35 a barrel in electronic trading by midday in Europe. The contract fell by more than 2 percent on Friday due to weakness in heating oil.

The Brent crude contract for April delivery declined 25 cents to $60.88 a barrel Monday on the ICE Futures exchange in London.

"The oil futures market has extended losses that happened during late trading on Friday," said Victor Shum of Purvin & Gertz in Singapore. Shum said heating oil futures were facing downward pressure exerted by the end of the winter season.

In Washington D.C., temperatures Saturday hit a peak of 67 degrees Fahrenheit, warmer than normal for this time of year. Southwest winds have been forecast to warm the U.S. Plains and the East Coast, according to AccuWeather.com.

"As oil prices have followed weather forecasts closely this year, expectations of lower heating oil demand weighed on crude prices," Vienna's PVM Oil Associates said.

Heating oil futures lost 2.2 cents to trade at $1.6895 a gallon while natural gas prices declined by just over 8 cents to US$7.000 per 1,000 cubic feet.

Also undermining prices were expectations that the Organization of Petroleum Exporting Countries will not change its output target when the cartel meets Thursday in Vienna, Austria, Shum said.

In Dubai, OPEC President Mohammed al-Hamli said global oil demand this year appears robust and expressed satisfaction with member compliance to previously decided production cuts _ although he said the organization was closely watching inventories that remained higher than average.

And Qatar's Oil Minister Abdullah bin Hamad al-Attiyah said world oil stockpiles were being drawn down and current crude prices indicated there was no need for OPEC to cut production further when it meets in Vienna this week.

Analysts believe what OPEC decides to do with production will help determine oil prices both over the long and short term.

Traders are also awaiting several reports out later this week that could help move the oil market. The International Energy Agency releases its monthly report on Tuesday and the National Weather Service updates its long-range forecasts on Thursday.

Markets remain focused on developments in the Middle East over Iran's failure to comply with demands to halt its uranium enrichment program. Washington is pushing for tougher U.N. sanctions on Tehran and introducing legislation to punish foreign oil companies that invest in Iran's energy industry.