Jan 8, 2007 7:01 am US/Pacific
Oil Prices Rise On Reports Of OPEC Talks
VIENNA, Austria (AP) ―
Oil prices rose Monday, supported by reports that OPEC oil ministers have begun talks on another potential cut and worries about energy shortages in parts of Europe as the fallout of a dispute between Russia and Belarus.
The rebound — which came after last week's plunge amid a warmer-than-normal winter in the U.S. Northeast, a key region for heating oil demand — strengthened amid reports that Belarus had ordered a halt to deliveries of Russian oil that goes via its territory to Germany, Poland and Ukraine.
The head of the Russian state pipeline operator Transneft, Semyon Vainshtok accused Belarus of siphoning off Russian oil destined for Europe since Saturday, the RIA-Novosti news agency reported.
Belarus recently had to accept a doubling of the price it pays for imports of Russian natural gas, on which it depends for industry and home heating, under the threat of supplies being but off. The two countries are now locked in a dispute over oil duties, with Russia determined to stop Belarus from re-exporting petroleum products made from processing Russian oil bought cheaply.
Jason Schenker, an economist with Wachovia Corp., said that if the dispute is not resolved soon, it could cause overall oil prices to rise as sellers from other markets could hike their own prices.
"If this situation is not resolved with relative expediency, the market may interpret it as a repeat of the Ukraine situation from last year, which would have bullish energy price implications," Schenker said. "The magnitude of the reaction of energy markets will be directly dependent on how protracted this situation becomes or appears likely to become."
Countries in the European Union, which depends on Russia for 25 percent of its gas consumption, suffered a brief disruption in early 2006 after Moscow suspended gas deliveries to Ukraine because of a pricing dispute. Ukraine and Belarus are the transit route for Russian gas to Europe.
OPEC anxiety over recent declines in prices also appeared to be affecting prices, with Vienna's PVM Oil Associates saying the market's recovery was partly due to "reports that OPEC might hold an extraordinary meeting prior to its scheduled meeting on March 15."
Citing a senior OPEC source, Dow Jones Newswires also reported Monday that members of the Organization of Petroleum Exporting Countries have begun talks on the potential need for a further output cut in response to a 10 percent drop in oil prices since the beginning of the year. OPEC had no immediate comment.
"OPEC almost has to do something here, and that is something we need to be ready for," said Peter Beutel at Cameron Hanover.
The oil cartel agreed to a 1.2 million barrel-a-day cut in crude output beginning in November and another 500,000 barrel-a-day cut set to begin Feb. 1.
Light, sweet crude for February delivery rose 82 cents to $57.13 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. Brent crude for February rebounded by $1.01 to $56.65 a barrel on the ICE Futures exchange.
"Because of a steep drop last week, the market is due for a rebound, and that's what we're seeing this morning," said Victor Shum, an analyst with Purvin & Gertz in Singapore.
Over the weekend, the U.S. National Weather Service reported record or near-record temperatures across the U.S. Northeast. The U.S. National Oceanic and Atmospheric Administration projected a December, January and February about 2 percent warmer in the Northeast than the 30-year average.
"The U.S. Northeast weather will remain a focal point but the winter season isn't over yet and some weather forecasters expect a cold front coming. There's a chance the cold weather will return and raise heating oil demand," Shum said.
Heating oil futures rose by more than 2 cents to $1.5875 a gallon, while natural gas prices gained more than 27 cents to $6.460 per 1,000 cubic feet.
In the longer term, analysts said many other factors that could send prices higher remained in place.
"With all the current bearish exuberance, we remind ourselves that Chinese demand, the overall (growth in the) economy, and the various geopolitical situations are hardly gone and should not be forgotten," said John Kilduff, senior vice president for energy risk management at Fimat USA.
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