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US Energy Secretary: Oil Market Well Supplied Ahead Of OPEC Cuts January 31, 2007

Posted by notapundit in Economic News, US News.

WASHINGTON(Dow Jones)–U.S. Energy Secretary Samuel Bodman on Wednesday said he believed global crude markets were well supplied ahead of the upcoming driving season in the U.S. – when refiners tend to build stocks – and ahead of expected additional production cuts due to be implemented by OPEC on Thursday.

The Organization of Petroleum Exporting Countries has said it will begin implementing a 500,000-barrels-a-day production cut – adding to a previously planned 1.2 million barrels a day in cuts – on Thursday. Few market watchers believe the cartel has implemented the full amount of decided cuts, estimating actual reduction in output is between 500,000 to 800,000 barrels a day.

But earlier this week, Saudi Arabia’s oil minister Ali Naimi said his country was to cut, as its contribution to the new reductions, an additional 158,000 barrels of output, with further tightening of OPEC crude spigots later in the month.

Asked if he was concerned that OPEC was planning to implement further cuts ahead of driving season, during a cold-weather snap in the U.S. and subsequent winter-stock draw-down and before a 100,000-barrel-a-day fill of the U.S. Strategic Petroleum Reserve in March, Bodman said he believed Saudi Arabia – OPECs de facto leader and the world’s biggest oil exporter – would keep the market well supplied.

Although the secretary said he hadn’t talked with Saudi Arabia’s Naimi for more than a month, he said: “In general, I have found him to be very supportive and understanding of our position, vis-a-vis, the need to keep markets well supplied, and allowing the market forces to determine price.”

Crude oil futures surged to a new four-week high Wednesday after U.S. government data showed distillate inventories, which include heating oil, fell more than expected amid continued forecasts for cold U.S. weather.

The front-month March light, sweet crude contract on the New York Mercantile Exchange closed up $1.13, or 2%, at $58.10 a barrel.

The secretary also said he believed the U.S. was better prepared for the driving season in terms of ethanol stocks and distribution. Last year, energy economists said a substantial portion of the surge in gasoline prices – which reached record levels during the driving season – was attributable to high ethanol prices. Ethanol replaced methyl tertiary butyl ether, or MTBE, as the industry standard for a gasoline additive, and bottlenecks in the production and distribution chains helped push prices higher.

“I think we are in better shape” than last year, Bodman told reporters following a congressional hearing.

“We’ve now gone through the exercise of replacing MTBE with ethanol, and we now have a large quantity of ethanol,” Bodman said.

By Ian Talley, Dow Jones Newswires


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