Crude Oil Falls After OPEC's Al-Naimi Says Market Is `Balanced'

By Alexander Kwiatkowski

Sept. 9 (Bloomberg) -- Crude oil fell in New York as Saudi Arabia's oil minister said supplies are sufficient to meet demand, signaling that OPEC may maintain production levels when it meets today.

The oil market is ``well-balanced'' and inventories are ``healthy,'' Saudi Arabian Oil Minister Ali Al-Naimi said this morning in Vienna. Most analysts polled by Bloomberg expect the 13 members of the Organization of Petroleum Exporting Countries, which supplies more than 40 percent of the world's oil, to keep quotas unchanged and output near record levels.

``At the moment they are very satisfied with what is happening,'' said Eugen Weinberg, a commodity analyst at Commerzbank AG in Frankfurt. ``The oil price is still above $100. From what we have heard they will come short of cutting production.''

Crude oil for October delivery fell as much as $2.11, or 2 percent, to $104.23 a barrel and traded at $104.60 at 1:37 p.m. London time on the New York Mercantile Exchange. Oil has dropped 29 percent from the record $147.27 reached on July 11.

Oil also declined as Hurricane Ike weakened to Category 1 on the 5-step Saffir-Simpson scale of intensity as it passed over Cuba, easing concerns it will damage Gulf of Mexico oil facilities. Sustained winds dropped to 80 miles (130 kilometers) per hour, the U.S. National Hurricane Center said on its Web site at 5 a.m. Miami time.

Output Disruption

The contract climbed as much as 3.5 percent yesterday as Ike delayed the restoration of Gulf of Mexico output that was closed because of Hurricane Gustav last week. Ike was moving across Cuba's western tip and was forecast to strengthen as it turns west into the Gulf of Mexico. The centre's 5-day forecast shows the storm making landfall near Corpus Christi, Texas.

``It is very early days yet, the storm tracker looks a little less dangerous than it did last night,'' said Mike Wittner, head of oil research at Societe Generale SA in London. ``It is a given they will shut everything down. The question is how much damage is sustained and how quickly it can be bought back up.''

U.S. energy producers have resumed 21 percent of oil production and 36 percent of natural-gas output in the Gulf of Mexico after Hurricane Gustav.

Energy companies reported 15 rigs and 200 production platforms are evacuated, the Minerals Management Service said in a statement on its Web site. About 1 million barrels of daily oil production and 4.7 billion cubic feet of gas remain shut in.

Brent crude oil for October settlement fell as much as $2.17, or 2.1 percent, to $101.27 a barrel on London's ICE Futures Europe exchange. It was at $101.83 a barrel at 1:38 p.m. local time.

OPEC Meets

The Gulf of Mexico accounts for 26 percent of U.S. oil production and 14 percent of natural-gas output. The Gulf produces 1.3 million barrels of oil and an estimated 7.4 billion cubic feet of gas a day, according to the Minerals Management Service, part of the U.S. Interior Department.

Natural gas for October delivery fell 4.5 percent to $7.192 per million British thermal units, while gasoline futures fell 3.9 percent to $2.6440 a gallon.

OPEC will review production targets for the fourth quarter at a meeting tonight. The group will probably keep output unchanged, according to 29 of 32 energy analysts surveyed by Bloomberg last week.

U.S. Relations

Prices will continue to fall irrespective of what the group decides to do, OPEC President Chakib Khelil said in a Bloomberg television interview today.

``A production cut would not serve much of a purpose,'' Khelil said in Vienna. ``Rather, it will damage the advantage the organization has got by making a positive gesture toward consuming countries,'' he said.

Khelil, who is also Algeria's oil minister, said there probably wouldn't be any need for OPEC to meet again between now and December.

OPEC does not want to jeopardize its relations with the U.S. by cutting output, possibly sending prices back towards the record $147.27 a barrel reached in July, said Stephen Schork, president of energy markets analysis firm Schork Group Inc., in a Bloomberg radio interview.

``Crude oil is still well over $100, gasoline, heating oil prices and fuel oil prices here in the United States and in Europe are still very expensive,'' he said. ``OPEC would like to cut production, but given the elections in the United States, I think they will refrain.''

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net