Oil slips closer to $83 in Europe as OPEC likely to leave output levels unchanged

An oil pipeline and tank storage facility is shown in Hardisty, Alta., June 20, 2007. THE CANADIAN PRESS/Larry MacDougal

June 13, 2012 - 9:51 AM

The price of oil slipped closer to US$83 a barrel Wednesday amid speculation that OPEC will leave its production quotas unchanged at this week's meeting to avoid hurting an already fragile global economy.

By early afternoon in Europe, benchmark West Texas Intermediate crude for July delivery was down 20 cents to US$83.12 a barrel in electronic trading on the New York Mercantile Exchange. The contract had risen 62 cents to settle at $83.32 in New York on Tuesday.

In London, Brent crude for July delivery was up 42 cents at US$97.56 a barrel on the ICE Futures exchange.

The Organization of Petroleum Exporting Countries is scheduled to hold its quarterly meeting Thursday against a backdrop of a 24 per cent decline in the price of crude over the last month or so. Some of the group's 12 members, such as Iran and Venezuela, will likely call on the cartel to cut output in a bid to boost prices.

However, analysts expect most of OPEC, led by Saudi Arabia, will oppose pinching supplies because the global economy is fragile. Lower oil prices should ease fuel costs, eventually freeing up consumer spending in net crude importers such as the United States, Europe and China.

"OPEC would not want to be seen to kick the global economy when it is down," analysts at Capital Economics wrote in a report.

The International Energy Agency said that while oil supplies had grown slightly in May, to 91.1 million barrels a day, several risks on the horizon, including the effect of sanctions against Iran and the possibility of resurgent growth in China, called for a cautious outlook.

"The market can clearly now be characterized as better supplied, but over-supplied looks something of a stretch, given the myriad uncertainties that lie ahead for the summer," the Paris-based IEA said in its monthly Oil Market Report released Wednesday.

The IEA also seemed to be calling on OPEC to maintain production levels.

"Some may be tempted to see the market as over-supplied and there have been calls by a number of producers for over-production to be reined-in," the IEA said.

"Memories are indeed short: crude prices remain very high in historical terms and are acting as a drag on household and government budgets in OECD and emerging markets alike. High prices eventually stunt demand growth."

The IEA cut its forecast for oil demand in 2012 to 89.9 million barrels a day from the 90 million barrels a day predicted in its previous report, issued May 11.

The latest U.S. crude supply numbers suggested demand remains weak. The American Petroleum Institute said late Tuesday that crude inventories rose 1.6 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a decrease of two million barrels.

Inventories of gasoline fell 878,000 barrels last week while distillates added 519,000 barrels, the API said.

The Energy Department's Energy Information Administration reports its weekly supply data — the market benchmark — later Wednesday.

In other energy trading, heating oil was up 1.28 cents at US$2.6343 a U.S. gallon (3.79 litres), while gasoline futures rose 0.75 of a cent to US$2.6577 a gallon. Natural gas fell 3.5 cents at US$2.197 per 1,000 cubic feet.

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