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OIL FUTURES: Nymex Crude Ends Lower After Dip Below $54 January 9, 2007

Posted by notapundit in Economic News.
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NEW YORK (Dow Jones)–Crude oil futures ended moderately lower Tuesday after dipping below $54.00 a barrel for the first time in more than 18 months.

The early drop of more than $2 in overnight trading came as warm Northeast weather damped winter demand and OPEC appeared to be lagging in its bid to tighten supplies.

Tanker tracker Petrologistics reported Tuesday that the 10 OPEC members that last year agreed to cut output actually increased their production in December by some 100,000 barrels a day. Including Iraq, which isn’t subject to quotas, the group’s output rose by 200,000 barrels a day in December, according to Petrologistics.

The report reinforced doubts over OPEC’s ability to tighten supplies in the face of sluggish winter demand.

“The markets were reacting very much to what OPEC was going to do,” said Edward Meir, an analyst at brokerage Man Financial in New York. “The fact is that the weather is very mild and eroding demand the cartel can’t do much about it.”

The February crude contract on the New York Mercantile Exchange fell 46 cents to $55.63 a barrel after dropping to an overnight low of $53.88, the lowest level for a front- month crude contract since June 2005.

February heating oil was down 6 points at $1.5565 a gallon.

February RBOB gasoline rose 11 points to $1.4696 a gallon after falling as low as $1.4301 a gallon earlier.

Final settlement prices were not yet available.

The late rebound in prices followed reports that talks between Russia and Belarus had failed to produce an agreement over oil supplies to both Belarus and Europe.

The Russia-Belarus spat is a concern for the market but “it’s still in its early days,” Meir said. “It hasn’t impacted the market yet. We have a lot of supplies in Europe we can count on.”

Crude’s climb above $55 is likely to spur traders to buy back previously sold positions but if the recovery is not extended prices are likely to fall back again, said Michael Cambria of PNDR Energy Group.

“If we don’t take out $56, I think February crude is going down to $54.20,” Cambria said. “I think OPEC is a non-issue, it’s all the weather. Even if we get a cold snap, our stockpiles are more than adequate.”

OPEC officials have responded to the recent drop in prices with assurances that they remain committed to implementing recently announced production cuts.

Traders will remain skeptical until they see evidence in the form of tightening supplies, Meir said.

“Just announcing their own cuts doesn’t mean anything because they haven’t enforced the cuts they have announced,” he said.

By Masood Farivar, Dow Jones Newswires

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