Oct. 10 (Bloomberg) -- Merrill Lynch & Co., the world's third-largest securities firm by market value, lowered its West Texas Intermediate oil price forecast for the fourth quarter on high inventory levels and weak demand, in an e-mailed statement today.
The average price of a barrel of crude oil traded in New York would fall to $61 a barrel in the fourth quarter, from $67 a barrel, on concerns that ``very high inventories'' and the possibility of a ``warmer-than-normal winter'' could dampen demand, the bank said in a research report.
Merrill expects OPEC, which supplies 40 percent of the world's oil, to cut back output in response to the weakening market for the crude, according to the statement.
OPEC President Edmund Daukoru wrote a letter to the group's 11-members over the weekend calling for an output cut of 1 million barrels a day effective from next month in an effort to bolster falling prices, an OPEC spokesman in Vienna said today.
Oct. 10 (Bloomberg) -- Crude oil in New York fell to the lowest close since February after Saudi Arabia's state oil company told customers in Asia and Europe to expect no cutbacks in their supplies next month.
Saudi Arabia, the largest oil exporter, notified refiners in Japan, India, Taiwan and South Korea that they will get the full volume of oil called for in annual contracts, refinery officials and traders said. Buyers in Europe will get the same as last month. The Saudi move may undercut the plan announced this week by OPEC President Edmund Daukoru to reduce production by 1 million barrels a day.
``History shows that OPEC deals only work when the Saudis are on board,'' said Bill O'Grady, an analyst with A.G. Edwards & Sons in St. Louis. ``Allocating the cuts is always the problem. The poor countries want the rich ones to take the hit and the rich ones will only do that if a cut is in their best interest.''
Crude oil for November delivery fell $1.44, or 2.4 percent, to close at $58.52 a barrel on the New York Mercantile Exchange, the lowest close since Feb. 16. Prices are down 25 percent from the record of $78.40 reached July 14 amid concern that fighting in Lebanon between Israel and the Islamic militia Hezbollah would spread through the Middle East.
Saudi Aramco sent letters today to notify East Asian customers they will receive the same amount of oil next month under long-term contracts, the 19th month with no change in shipments, according to traders and refinery officials who buy oil from Saudi Arabia and declined to be identified because of confidentiality agreements.
Saudi Contracts
Saudi Aramco sells oil under annual contracts that customers renew each year. Buyers are told each month how much oil they can get the next month so arrangements to ship the cargoes can be made. Buyers in Europe have received 70 percent of their contracted Saudi volumes since early 2005, and that will continue in November.
Saudi Arabia accounts for almost a third of OPEC's output. The country hasn't officially commented on whether it's taking part in any reduction in OPEC's supplies.
``There are a lot of reasons for the Saudis to keep on pumping at the present rate,'' O'Grady said. ``The Saudis will do what is in their best interest both economically and geopolitically. Lower prices will hurt rivals in OPEC such as Iran and Venezuela.''
Separately, Aramco told global major oil companies it would lower November supplies by 5 percent, Reuters said yesterday.
Daukoru's Proposal
Daukoru wrote letters to Organization of Petroleum Exporting Countries ministers on Oct. 8 asking them to join the proposed cutback, said the spokesman, who declined to be identified. If they agree, OPEC would lower its official ceiling on output from the current 28 million barrels a day. Indonesian oil minister Purnomo Yusgiantoro said today he got such a letter.
``The impact of OPEC's recent jawboning has been reduced by the Saudi news,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``It is important to not read too much into this.''
OPEC is trying to turn existing ``voluntary'' cutbacks by several members into a group-wide, formal accord. Kuwaiti Oil Minister Sheikh Ali-Jarrah al-Sabah said yesterday ``everyone is in agreement for a cut.''
So far, Nigeria and Venezuela have announced ``voluntary'' cutbacks totaling a combined 170,000 barrels a day. Four other countries, Saudi Arabia, Kuwait, Libya and Algeria, have also agreed to informal cutbacks, Daukoru's spokesman said on Oct. 8, without giving further details.
``We are waiting to see if they actually cut,'' said Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina. ``Announcing a cut is easy, enforcement has always been a problem for OPEC.''
Reduced Forecasts
Merrill Lynch & Co., the world's third-largest securities firm by market value, lowered its forecast for New York-traded oil for the fourth quarter on high inventories and weak demand, Francisco Blanch, senior oil strategist, wrote today in an e- mailed report.
The average price of West Texas Intermediate, the U.S. benchmark, will fall to $61 a barrel in the fourth quarter from $67 a barrel on concern about ``very high'' inventories and the possibility of a warmer-than-normal winter, Blanch said. ``We've been bearish for the past three or four months on the basis of growing'' fuel surplus.
Watching OPEC
``The main thing in watching OPEC is to see what they actually do,'' Guy Caruso, head of the statistics arm of the U.S. Energy Department, said at a press conference. ``All other things being equal, there should be enough inventory to deal with uncertain supply.''
U.S. crude oil inventories probably rose 1.5 million barrels in the week ended Oct. 6, according to the median of forecasts by 12 analysts before an Energy Department report this week. Supplies in the week ended Sept. 30 were 13 percent above the five-year average for the period.
Brent crude oil for November fell $1.20, or 2 percent, to close at $59.34 a barrel on the London-based ICE Futures exchange.
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