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Oil prices dip on lower OPEC forecast

A trader works the phones in the natural gas pit at the New York Mercantile Exchange on Friday in New York. PHOTO: AP

Oil prices edged higher on Friday but finished lower for the week after OPEC lowered its oil-demand forecast for the rest of the year.

Oil prices lost more than 4 percent for the week, and analysts said there has been a definite shift in energy-market psychology, as traders focus on the relatively comfortable balance between supply and demand as opposed to hypothetical supply threats.

However, Fimat USA analyst John Kilduff said in a research note that geopolitical uncertainty, which helped push prices to an all-time high of US$78.40 in July, could eventually re-ignite energy markets.

"In the end, our bias still has to remain with the upside," Kilduff said. "It is only for the moment that psychology has shifted more to an economic track, and even there, we don't see the global economy breaking down, only a softening at the margins."

The Federal Reserve said on Friday that the nation's industrial output unexpectedly fell by 0.1 percent last month, reflecting weakness in manufacturing and declines in mining and utility production. Analysts had been looking for a small increase.

Some worldwide economic softening was acknowledged on Friday by the Organization of Petroleum Exporting Countries, which said fourth-quarter demand for its oil would be 320,000 barrels a day lower than previously forecast, or 28.86 million barrels per day.

Next year, OPEC expects demand for its crude to average 28.1 million barrels per day, or 800,000 barrels per day less than this year's average, in part because non-OPEC supplies are rising. As a result, some analysts believe the Vienna-based cartel, which is pumping close to 30 million barrels a day, may end up cutting its output by 1.5 million barrels a day or more.

"It looks for 2007 that OPEC revenues are going to be under pressure, from both price and volume," Citigroup analyst Tim Evans said.

After falling as low as US$62.03 a barrel, light sweet crude for delivery next month settled at US$63.33, a gain of US$0.11 on the New York Mercantile Exchange. Still, oil prices remain about 20 percent below the July peak.

"It's been going straight down. We can't be surprised by a rally," said Man Financial broker Andrew Lebow.

Brent crude dropped US$0.21 to settle at US$63.33 on the ICE Futures Exchange in London.

Nymex natural gas futures, which plunged 10 percent on Thursday to a two-year low after government data revealed surging inventories, rebounded slightly. Natural gas for delivery next month rose US$40.09 to settle at US$4.982 per 1,000 cubic feet.

In other Nymex trading, gasoline futures rose by US$02.28 to settle at US$1.575 a gallon, while heating oil futures fell less than US$0.01 to settle at US$1.7023 a gallon.
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