NYMEX crude slips on Saudi comments, players divided on outlook

Crude oil futures on the Nymex slipped under US$90/barrel early in the week based on rising stock levels at the Nymex delivery point in Cushing, Oklahoma as well as comments from Saudi Arabian Oil Minister Ali Naimi that Saudi Arabia might increase its production levels to meet the increase in crude oil demand they expect to see in 2011, as per Chemorbis. In a statement released yesterday, the Saudi Oil Minister predicted that crude oil demand would rise between 1.5 - 1.8 mln bpd in 2011, a more optimistic demand forecast than the International Energy Agency’s anticipated demand increase. The Minister added that they expect crude oil prices to remain mostly stable at prices close to 2010’s average Nymex settlement of US$79.41/barrel as OPEC is prepared to increase production to meet the anticipated demand growth. While prices moved lower on the Nymex in early trade yesterday, Brent crude oil futures moved higher in daily trading as traders in London focused on the Saudi Minister’s optimistic demand growth forecast for the current year. The gap separating Brent crude oil prices from American crude futures has reached its greatest height since February 2009 as oil supplies from the North Sea have been tight while American traders have been faced with rising stock levels at the Nymex delivery point in Cushing, Oklahoma. Analysts are divided regarding the short term outlook for crude oil prices. Analysts at Goldman Sachs said that they consider the Brent benchmark to be more indicative of the future direction of the market at present as they believe the Nymex to be too “idiosyncratic” because of storage issues surrounding the Cushing delivery point. The downward movement in crude prices had also surprised other analysts, who had expected crude to gain ground based on firm equity markets. Analysts at Merrill Lynch predicted that crude oil prices would move above the US$100/barrel threshold once again this year based on improved global oil demand, although these analysts added that they do not believe that crude oil prices will move high enough to threaten the record US$147/barrel levels seen in 2008. On the other side of the ledger, some analysts have expressed skepticism regarding optimistic oil demand forecasts, saying that global oil demand growth could be slowed significantly in 2011 due to China’s ongoing efforts to restrain inflation that recently saw the Central Bank raise reserve requirements for the seventh time in the past few months. These analysts commented that even a relatively slight slowdown in demand from China could have serious repercussions for global oil demand growth in 2011.