VIENNA (AP) — Traders today ignored the bullish effect of strike threats from U.S. oil workers, sending crude prices below $41 over continued concerns about the world’s economy.
Even new indications that OPEC members were generally complying with significant output reductions failed to buoy markets.
Light, sweet crude for March delivery fell $1.27 to $40.41 a barrel by noon in Europe in electronic trading on the New York Mercantile Exchange. On Friday, the contract rose 24 cents to settle at $41.68.
Negotiations over wage increases continued over the weekend, with some 24,000 refinery workers agreeing to postpone a strike for at least a day. The United Steelworkers agreed to a rolling 24-hour extension of talks.
Workers plan to show up for scheduled shifts today, though a strike would affect 60 refineries. The biggest U.S. refiner, Valero Energy Corp., said it would shut down some facilities if workers walk out, as did European oil company BP PLC.
“The threat of an oil workers union strike is helping support prices in the short-term,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “If refineries shut down, prices for crude products will go higher.”
After a year when oil prices soared to a record $147 a barrel in July only to collapse to $33 in December, crude has traded in the low $40s for the last week or so as investors eye weakening crude demand matching OPEC production cuts.
The Organization of Petroleum Exporting Countries has promised to slash output by 4.2 million barrels since September, and officials have suggested the group may reduce quotas again soon.
Saudi Arabia, OPEC’s biggest exporter, has led the production drop.
“OPEC producers seem to have a rather high level of compliance with the cuts, especially Saudi Arabia,” Shum said.
Vienna’s JBC Energy estimated that the 11 OPEC members bound by quotas cut output by 1.57 million barrels a day between in the month ending with January to produce 25.85 million barrels a day.
“We have calculated that the latest month-on-month decline in output contributes to an overall rate of compliance of more than 76 percent” to OPEC’s commitment to slash output by a daily 4.2 million barrels from last September, said JBC in a research note.
“The impact of OPEC’s most recent efforts should not be underestimated and … the group is serious about reducing the current supply overhang,” said JBC.
Still, investors remain most focused on the economy — they’ll be watching closely for signs of slowing consumer demand from a slew of U.S. economic numbers released this week. Friday’s January employment report while data on home sales, manufacturing, factory orders, and the services sector come out throughout the week.
Cisco Systems Inc. and Time Warner Inc. are also set to report quarterly results this week.
“I expect those numbers will be rather bleak,” Shum said. “The economic data will continue to put downward pressure on oil.”
In other Nymex trading, gasoline futures fell by more than 3 cents to $1.24 a gallon. Heating oil slid by more than 4 cents to $1.39 a gallon while natural gas for March delivery slipped by 11 cents to $4.31 per 1,000 cubic feet.