Global supply threats, possible OPEC output cut weighed

Crude-oil futures slipped from a $50 peak Tuesday, but still closed at their highest level in over two weeks as traders remained nervous about the outlook for global supplies ahead of the Thanksgiving holiday and this week’s U.S. inventory updates.

“The issues facing the oil markets aren’t going away anytime soon and it’s a long laundry list of worry,” said Phil Flynn, a senior analyst at Alaron Trading in Chicago.

“Geopolitical troubles are front and center, and the continuing issues of old fashioned supply and demand are ever present,” he said.

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Crude for January delivery rose Tuesday to a high of $50.25 a barrel on the New York Mercantile Exchange — an intraday level not seen since Nov. 4. It then eased back to close at $48.94, up 30 cents for the session, but still marking its highest close since Nov. 8.

December heating oil followed suit to close at $1.4458 a gallon, up 0.09 cent after tapping a high of $1.483 earlier, and December unleaded gasoline closed at $1.3063 a gallon, up 1.69 cents.

Despite the pullback in prices by the day’s close, the fact that oil prices broke through $50 likely means that the market will see $52 a barrel before it sees $46 again, said Kevin Kerr, president of Kerr Trading International.

“The market is just ripe with solid fundamentals as the Middle East battles increase, the fear of terrorism is escalating here and abroad as evidenced by the events in London this week, and continued pent-up demand for the crude — all of this coupled with the fund buying — is enough to support a crude price above $50,” he said.

A British television news channel claims that Britain thwarted an al-Qaida plot to fly planes into Heathrow Airport and London’s giant Canary Wharf skyscrapers, according to an Agence France-Presse report Tuesday.

So all in all, some forecasts for colder temperatures, rising terror concerns and supply concerns out of Iraq have all combined to lift the price of oil, said Alaron’s Flynn.

Eyeing the oil producers

Saudi Arabia and the United Arab Emirates said Monday that supply was good and prices were too high, said Michael Cavanaugh, an analyst at brokerage MyFuturesOnline.com.

The comments follow last week’s statement from Venezuela that it supports an Iranian proposal to cut oil output to support prices. OPEC’s production quota, which excludes Iraq, is currently 27 million barrels. The cartel plans to meet on Dec. 10 in Cairo.

But “seeing OPEC wait until the December meeting to change production levels probably means that the oversupply situation will be allowed to continue through most of the slack demand period,” said John Kilduff, an analyst at Fimat USA.

Still, Chinese imports were up 33 percent in October. “This seemed to be one of the main catalysts that got us over $50 a barrel in the first place,” said Cavanaugh.

Meanwhile, the Russian government is set to go ahead with its plan to sell 76.8 percent of the production unit of oil giant Yukos (YUKOF: news, chart, profile) next month as part of attempts to claim billions of dollars in back taxes. The unit pumps about 1 million barrels per day.

The China National Petroleum Corp. may be interested in bidding on the Yukos subsidiary, according to IFR Markets, which cited a report from a Russian daily newspaper Tuesday.

In Iraq, repairs on a southern Iraqi oil pipeline system may take a week following an explosion Monday that was reportedly due to corrosion, not terrorism, according to IFR senior analyst Tim Evans. Exports through the pipeline were cut by 750,000 barrels per day to about 1 million barrels.