N.Y. Oil Falls as OPEC Signals No Cuts, Ike May Pass Oil Region

By Mark Shenk and Samantha Zee

Sept. 10 (Bloomberg) -- Crude oil fell to a five-month low in New York as the Saudi Arabian and Venezuelan oil ministers signaled OPEC will maintain production levels at a meeting in Vienna, and as Hurricane Ike may bypass U.S. oil regions.

Ministers of the Organization of Petroleum Exporting Countries agreed to keep output steady, Platts reported, citing an unidentified delegate. The market is ``well-balanced'' Saudi Oil Minister Ali al-Naimi said yesterday. Rafael Ramirez, Venezuela's energy and oil minister, said the group should leave production unchanged. Hurricane Ike weakened and veered away from platforms in the Gulf of Mexico.

``If Venezuela is comfortable with a rollover, we aren't going to see a cut from OPEC,'' said Tim Evans, an energy analyst with Citi Futures Perspective in New York. ``There will probably be a lot of talk about compliance, and little else.''

Crude oil for October delivery fell 56 cents, or 0.5 percent, to $102.70 a barrel at 8:56 a.m. Sydney time on the New York Mercantile Exchange. Prices have dropped to their lowest since the start of April after reaching a record $147.27 on July 11.

Yesterday, October crude futures fell $3.08, or 2.9 percent, to $103.26 a barrel in New York.

Brent crude oil for October settlement declined $3.10, or 3 percent, to settle at $100.34 a barrel on London's ICE Futures Europe, the lowest settlement price since April 1. Futures touched $99.04, the lowest intraday price since March 25. The contract has dropped nine straight days, the longest stretch since 1988.

`Psychological Impact'

``There's a psychological impact with the return to double- digit prices,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``OPEC members have gotten used to prices with a one in front. They probably won't wait long to act, because 1998 is always in the back of their mind.''

OPEC raised quotas at a meeting in Jakarta in November 1997, just before Asian economies faltered. A combination of increased supply and falling demand sent prices tumbling to $10 a barrel the following year.

``We have worked very hard since June's meeting to bring prices to where they are now,'' al-Naimi said upon arrival in Vienna. ``We have been very successful.''

Saudi Arabia, the world's largest oil producer, pledged to raise output by 500,000 barrels a day through June and July to calm prices. It hosted an emergency meeting of oil producers and consumers in June to discuss how to stabilize markets. Saudi King Abdullah said oil prices above $100 a barrel were too high, in an interview with Italian newspaper La Repubblica on July 16.

Stricter Compliance

``Venezuela will support leaving production unchanged'' at the meeting that began yesterday, Ramirez said. ``Stocks are at a comfortable level and we're seeing an overproduction of 1 million to 1.5 million barrels a day.''

Ramirez called for stricter compliance with production quotas to counter a potential gain in stockpiles in the first quarter next year. ``History has shown that if inventories rise above normal levels, we will have a price collapse,'' he said.

The market is nearing ``equilibrium'' at about $100 a barrel, Ramirez said. He declined to comment on whether an output cut is on the table at today's gathering and said an additional meeting before OPEC's Dec. 17 summit in Algeria is possible. ``We will carefully have to monitor the market until then,'' he added.

``The last thing OPEC wants is to see economies crater around the world,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``They want to see strong demand growth.''

OPEC members with quotas produced about 592,000 barrels a day more than their official limit of 29.673 million last month, according to Bloomberg News estimates. Iraq has no quota.

Political Impact

``Politically, they don't want to rock the boat at this time,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York. ``The economic situation is another reason for keeping production unchanged.''

Ike weakened to Category 1 on the 5-step Saffir-Simpson scale of intensity as it entered the southeastern Gulf of Mexico yesterday, with sustained winds of 75 miles (120 kilometers) per hour, the U.S. National Hurricane Center said on its Web site at 5 p.m. Miami time.

Now that Ike has emerged in the Gulf, it could strengthen and become a ``major'' hurricane, the hurricane center report said. The center's 5-day forecast shows the storm making landfall near Corpus Christi, Texas, which means it could bypass most of the oil installations in the Gulf, lessening the chance of causing major damage in the region.

``The main thing moving the market is that Ike has veered to the southwest,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``It's now expected to make landfall on the south Texas coast, which will spare most of the platforms and refining areas.''

Gasoline for October delivery fell 9.77 cents, or 3.6 percent, to settle at $2.6526 a gallon in New York, the lowest settlement since April 1. Heating oil dropped 8.84 cents, or 2.9 percent, to $2.9247 a gallon, the lowest settlement price since April 3.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Samantha Zee in Los Angeles in szee@bloomberg.net.