tigerhonaker
10-07-2006, 08:10 PM
Oct. 6, 2006, 2:43PM
Oil's Downhill Sprint Hits Headwinds
By BRAD FOSS AP Business Writer
© 2006 The Associated Press
WASHINGTON — After a downhill sprint to $60 a barrel, oil prices have run into headwinds caused by geopolitics and OPEC, making further steep declines more difficult.
Motorists can expect recent relief at the pump to continue, analysts said, though the nationwide average could very well stay above $2 a gallon for the remainder of the year.
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For now, the U.S. economy may have to take what it can get _ prices that are high and volatile by historical standards, but not as painful as many feared.
"In the short term, $60 oil obviously should mean a significant boost to the economy since we're coming from $75 plus oil," said Stephen Stanley, chief economist at RBS Greenwich Capital. But even at these reduced levels, oil remains a "hindrance" to growth, he said.
Crude-oil futures in New York settled Friday at $59.76 a barrel, a decline of 27 cents. The nationwide retail average for gasoline is $2.28 a gallon.
Early in the week, it appeared oil was caught in an unstoppable free-fall. Futures plunged by more than $4 in two days to a seven-month low, and some analysts said $50 per barrel was likely if global inventories kept rising.
Then, halfway through Wednesday's trading session, the selling came to a halt when violence in Nigeria flared up and there was renewed talk of possible U.N. sanctions against Iran over its nuclear ambitions. Although supplies were not affected, geopolitical jitters _ temporarily absent as a market-moving force _ were now back on the map, analysts said.
"The risk of things getting far worse in Nigeria have, until now, been severely underestimated in the market," said Fimat USA analyst Antoine Halff. As for tensions between Iran and the West, Halff said it is only a matter of time before there is more saber-rattling from both sides as they try to negotiate a resolution to Tehran's uranium enrichment program.
On Thursday, traders awoke to reports of an informal agreement by the Organization of Petroleum Exporting Countries to trim its output by 1 million barrels a day. While there appears to be more talk than action at this point, many analysts assume a decision to reduce production is in the works.
Nevertheless, oil prices could continue to drift lower until traders see actual barrels come off the market, or at least a public pledge from OPEC's de facto leader, Saudi Arabia, to support such a move.
One adviser to Saudi Arabia's petroleum ministry, who spoke on condition of anonymity, said the country's output is being gradually scaled back due to softening demand, but that OPEC-wide cuts have not been agreed upon. The cartel is scheduled to meet in Nigeria in December.
"OPEC is trying to be a little more patient this time around than they have been in the past, but it's hard to be patient when you see prices give up that much ground in that short a period," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
At the very least, Flynn and other analysts said, the OPEC chatter makes it riskier for traders to bet on sharply lower prices. That in itself could keep oil from dipping below $55 a barrel. A cold winter or stronger-than-expected economic growth would also prop up prices.
The last time OPEC cut production was December 2004, when it pulled 1 million barrels a day off the market. Within a week, oil prices jumped by more than 13 percent.
A similar spike might not occur this time around, but global energy prices are likely to remain volatile, analysts said.
"We might see $55 a barrel and $70 a barrel within the next six months," said Oil Price Information Service director Tom Kloza.
Based on historical patterns between 1980 and 2002, an oil price of around $60 would translate to $2.15 at the pump, Kloza said. But prices have traded at steep premiums to historical averages in recent years due to geopolitics and hurricanes, adding as much as a quarter per gallon at the pump.
"We could see sub-$2-a-gallon retail gasoline in the fourth quarter of 2006, and prices north of $2.50 a gallon in the second quarter of 2007," Kloza said.
Economists said the outlook for consumers and businesses is certainly brighter with oil retreating from its mid-July high above $78 a barrel. But their optimism is tempered by the fact that oil still costs twice as much as it did three years ago.
The recent plunge in oil prices followed a late-summer selloff in gasoline, easing fears about the hurricane season and rising inventories of crude around the world as economic growth cooled.
Global Insight economist Nigel Gault said lower income Americans and businesses that cater to them will benefit the most from falling fuel prices, and he expects some lift for the tourism industry as well.
"But does that mean consumer spending growth will accelerate? No," Gault said. "Spending growth won't decelerate as much as we thought."
The U.S. airline industry, bruised like no other sector by soaring energy prices, is poised for profitability with oil at $60 a barrel, according to the Air Transport Association. Carriers are in better shape than a few years ago thanks to aggressive cost-cutting and recent fare hikes.
Some analysts expect oil prices to keep falling despite OPEC's best efforts to prop them up. That's because with every output cut OPEC makes, there is subsequently a greater amount of unused production capacity that can be tapped in the event of supply troubles in places like Nigeria or Iran.
Just as dwindling spare capacity helped push oil to record levels, reversing that trend should soothe the market, said Michael Lynch, director of Strategic Energy and Economic Research Inc. of Winchester, Mass.
The question is, he said, "are markets rational?"
http://www.chron.com/disp/story.mpl/ap/fn/4241374.html
Oil's Downhill Sprint Hits Headwinds
By BRAD FOSS AP Business Writer
© 2006 The Associated Press
WASHINGTON — After a downhill sprint to $60 a barrel, oil prices have run into headwinds caused by geopolitics and OPEC, making further steep declines more difficult.
Motorists can expect recent relief at the pump to continue, analysts said, though the nationwide average could very well stay above $2 a gallon for the remainder of the year.
try{OAS_AD('Middle');}catch(e){}
For now, the U.S. economy may have to take what it can get _ prices that are high and volatile by historical standards, but not as painful as many feared.
"In the short term, $60 oil obviously should mean a significant boost to the economy since we're coming from $75 plus oil," said Stephen Stanley, chief economist at RBS Greenwich Capital. But even at these reduced levels, oil remains a "hindrance" to growth, he said.
Crude-oil futures in New York settled Friday at $59.76 a barrel, a decline of 27 cents. The nationwide retail average for gasoline is $2.28 a gallon.
Early in the week, it appeared oil was caught in an unstoppable free-fall. Futures plunged by more than $4 in two days to a seven-month low, and some analysts said $50 per barrel was likely if global inventories kept rising.
Then, halfway through Wednesday's trading session, the selling came to a halt when violence in Nigeria flared up and there was renewed talk of possible U.N. sanctions against Iran over its nuclear ambitions. Although supplies were not affected, geopolitical jitters _ temporarily absent as a market-moving force _ were now back on the map, analysts said.
"The risk of things getting far worse in Nigeria have, until now, been severely underestimated in the market," said Fimat USA analyst Antoine Halff. As for tensions between Iran and the West, Halff said it is only a matter of time before there is more saber-rattling from both sides as they try to negotiate a resolution to Tehran's uranium enrichment program.
On Thursday, traders awoke to reports of an informal agreement by the Organization of Petroleum Exporting Countries to trim its output by 1 million barrels a day. While there appears to be more talk than action at this point, many analysts assume a decision to reduce production is in the works.
Nevertheless, oil prices could continue to drift lower until traders see actual barrels come off the market, or at least a public pledge from OPEC's de facto leader, Saudi Arabia, to support such a move.
One adviser to Saudi Arabia's petroleum ministry, who spoke on condition of anonymity, said the country's output is being gradually scaled back due to softening demand, but that OPEC-wide cuts have not been agreed upon. The cartel is scheduled to meet in Nigeria in December.
"OPEC is trying to be a little more patient this time around than they have been in the past, but it's hard to be patient when you see prices give up that much ground in that short a period," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
At the very least, Flynn and other analysts said, the OPEC chatter makes it riskier for traders to bet on sharply lower prices. That in itself could keep oil from dipping below $55 a barrel. A cold winter or stronger-than-expected economic growth would also prop up prices.
The last time OPEC cut production was December 2004, when it pulled 1 million barrels a day off the market. Within a week, oil prices jumped by more than 13 percent.
A similar spike might not occur this time around, but global energy prices are likely to remain volatile, analysts said.
"We might see $55 a barrel and $70 a barrel within the next six months," said Oil Price Information Service director Tom Kloza.
Based on historical patterns between 1980 and 2002, an oil price of around $60 would translate to $2.15 at the pump, Kloza said. But prices have traded at steep premiums to historical averages in recent years due to geopolitics and hurricanes, adding as much as a quarter per gallon at the pump.
"We could see sub-$2-a-gallon retail gasoline in the fourth quarter of 2006, and prices north of $2.50 a gallon in the second quarter of 2007," Kloza said.
Economists said the outlook for consumers and businesses is certainly brighter with oil retreating from its mid-July high above $78 a barrel. But their optimism is tempered by the fact that oil still costs twice as much as it did three years ago.
The recent plunge in oil prices followed a late-summer selloff in gasoline, easing fears about the hurricane season and rising inventories of crude around the world as economic growth cooled.
Global Insight economist Nigel Gault said lower income Americans and businesses that cater to them will benefit the most from falling fuel prices, and he expects some lift for the tourism industry as well.
"But does that mean consumer spending growth will accelerate? No," Gault said. "Spending growth won't decelerate as much as we thought."
The U.S. airline industry, bruised like no other sector by soaring energy prices, is poised for profitability with oil at $60 a barrel, according to the Air Transport Association. Carriers are in better shape than a few years ago thanks to aggressive cost-cutting and recent fare hikes.
Some analysts expect oil prices to keep falling despite OPEC's best efforts to prop them up. That's because with every output cut OPEC makes, there is subsequently a greater amount of unused production capacity that can be tapped in the event of supply troubles in places like Nigeria or Iran.
Just as dwindling spare capacity helped push oil to record levels, reversing that trend should soothe the market, said Michael Lynch, director of Strategic Energy and Economic Research Inc. of Winchester, Mass.
The question is, he said, "are markets rational?"
http://www.chron.com/disp/story.mpl/ap/fn/4241374.html