Oil Falls as Minister Comments Signal OPEC Won't Cut Output

By Mark Shenk

Sept. 8 (Bloomberg) -- Crude oil fell to a five-month low as the Saudi Arabian and Venezuelan oil ministers signaled that OPEC may maintain production levels when it meets today in Vienna.

The market is ``well-balanced'' Saudi Oil Minister Ali al- Naimi said today. Rafael Ramirez, Venezuela's energy and oil minister, said the group should leave production unchanged. Most analysts surveyed by Bloomberg News expect the Organization of Petroleum Exporting Countries to keep output unchanged. Oil also fell as Hurricane Ike weakened and veered away from platforms.

``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 $2.37, or 2.2 percent, to $103.97 a barrel at 9:51 a.m. on the New York Mercantile Exchange. Futures touched $103.85, the lowest since April 3. Prices are up 36 percent from a year ago.

Ike weakened to Category 1 on the 5-step Saffir-Simpson scale of intensity as it passed over Cuba, easing concern 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.

The contract climbed as much as 3.5 percent yesterday as Ike delayed the restoration of Gulf 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. The center's 5-day forecast shows the storm making landfall near Corpus Christi, Texas.

Hard Work

``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.''

Crude oil prices are down 29 percent from a record $147.27 reached July 11.

``Venezuela will support leaving production unchanged'' at today's meeting, Ramirez said as he arrived at his hotel in Vienna. ``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 an ``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.

Strong Economies

``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.''

Brent crude oil for October settlement declined $1.57, or 1.5 percent, to $101.87 a barrel on London's ICE Futures Europe. Prices touched $101.27, the lowest since April 2. The contract has dropped nine straight days, the longest stretch since 1988.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.