Energy Markets Commentary - Nov. 12

Energy futures are trading lower today on news that OPEC may discuss a production increase at this weekend’s summit in Riyadh, comments by the head of U.S. Central Command, Admiral William Fallon, in an FT interview that a U.S. military strike against Iran is not in the offering, and expectations for slowing retail spending growth in the U.S in Oct. with retail sales data due out on Wednesday.

According to AFP, the Saudi oil minister, Al Naimi, said during a visit to Kuwait over the weekend that “it is premature to speak of an increase in output”, though “OPEC will discuss the issue when it meets.” It is unclear whether al Naimi was referring to OPEC’s summit or its next official meeting on Dec. 5. Additionally, Dow Jones reported today, citing a source close to OPEC’s policy discussions, that the Saudis want another 500K b/d in the market. The unnamed official said that “If the market progresses and rises above $100 a barrel, I think the Saudi’s will push for something then and not wait until the December meeting.”

Also regarding OPEC, Iran’s OPEC governor said today according to IRNA that OPEC ministers were not due to discuss a possible output rise later this week, but the idea would be raised at the Dec. meeting in Abu Dhabi. Similarly, Indonesia’s OPEC governor told Reuters today that “I think there will be no decision to increase supply in Riyadh because Dec. 5 is already near.” Qatar’s oil minister said yesterday that he did not expect an output decision in Riyadh.

Goldman Sachs wrote in a research note that the recent rapid price appreciate may accelerate the short-term rebalancing it expects for Q1, when it saw a likely response from OPEC producers and a softening in demand growth to put downward pressure on prices. Goldman added that while prices may rally to $100 a barrel in the coming days, its price target for WTI is $80 a barrel for April 2008.

In an interview with the Financial Times published today, the head of U.S. Central Command, Admiral William Fallow, said that while dealing with Iran was a “challenge”, a strike was “not in the offering.” Correspondingly, U.S. Secretary of State, Rice, said yesterday during an appearance on ABC’s “This Week” that President Bush has made it clear he’s on a diplomatic path where Iran comes into focus.

Elsewhere, Exxon Mobil said today that Nigeria’s Qua Iboe oil terminal was attacked by militants in seven boats. A short while ago the company said that shooting had stopped and the attack had no impact on production.

On the weather front, Accuweather wrote today that the “Northeast and mid-Atlantic will continue to have rain as a warm front pushes northward Monday.” The forecaster also said that the “Plains will have record-challenging warmth return to the region and push east over Monday and Tuesday. High pressure will promote winds coming from the southwest that will enhance the warm air flow into the region.”

At 12:15 p.m. BST WTI crude futures are down $1.20 at $96.12. RBOB gasoline futures are lower by 2.1 cents at 243.50 and heating oil futures are falling 1.7 cents to 226.17. Natural gas futures are off $0.14 at $7.76.

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