Wednesday, March 25, 1998

Crude oil falls amid skepticism oil-producing nations will meet cuts

By CLIFF EDWARDS AP Business Writer

Crude oil futures prices Tuesday gave up half the previous day's gains amid skepticism oil-producing nations will honor commitments to cut output in a bid to reduce a world supply glut.

On other commodity markets, palladium futures jumped to new 18-year highs.

Crude posted its biggest one-day gain since January 1991, surging 13 percent on Monday after members of the Organization of Petroleum Exporting Countries reached an unusual agreement with some non-OPEC producers to cut production by about 2 million barrels a day beginning in April.

The announcement came after prices had fallen to their lowest level in nine years amid overproduction and falling world demand.

The move was given added importance because Saudi Arabia, Venezuela and Mexico - which, together, produce a fifth of the world's oil - had joined the pact.

But Russia and Norway, both important non-OPEC producers, did not sign on to the agreement, which could limit its impact.

Further, analysts noted Venezuela, the largest exporter of oil to the United States, has repeatedly exceeded its OPEC production quota. The 11 OPEC nations on Jan. 1 boosted their total output by 10 percent, but some members have complained bitterly that Venezuela was cheating on production even after that.

Market participants now are taking a wait-and-see attitude over output. The large world supply glut has been exacerbated by waning demand from economically troubled Southeast Asia.

Industry observers expected the American Petroleum Institute to report late Tuesday that U.S. inventories rose by as many as 3 million barrels in the past week amid continued high imports. That has also led to increased production of heating oil and gasoline, causing gasoline prices to fall below $1 a gallon in many parts of the country.

"The impact of the production cuts on the oversupply won't manifest itself for some time," said analyst Gerald E. Samuels at ARB Oil Inc. "We're certainly not going to see any changes overnight."

"What everyone's trying to ascertain is how much is that production cut worth in hard dollars, which is a very difficult question when you don't know how much will be cut," Samuels said.

Crude oil for May delivery fell 59 cents, or 3.6 percent, to $15.92 a barrel. April heating oil fell 1.11 cents, or 2.5 percent, to 44.05 cents a gallon. April gasoline fell 2.5 cents, or 4.6 percent, to 51.46 cents a gallon.

Palladium futures posted new highs on the New York Mercantile Exchange on concerns that Russian President Boris Yeltsin's shakeup of his Cabinet would further delay new sales of the industrial metal to Western manufacturers.

Russia, the world's leading supplier of the metal, has not shipped palladium to Japanese customers since late last year, despite repeated assurances that exports would resume shortly. Japan is the largest consuming country for the metal, which is used in cars, electronics and jewelry.

Yelstin's decision to fire his Cabinet has raised fears that export licenses will be delayed indefinitely, causing a reprise of last year when new supplies weren't shipped until late July.

The nearby March palladium contract rose $5.65, or 2 percent, to $289 an ounce, while the active June contract fell $3.35 to $278 an ounce on a late bout of profit-taking.

Copper futures fell after the London Metal Exchange reported a surprising increase in its warehouse inventories.

The exchange reported 2,425 metric tons of copper flowed into its warehouses overnight Monday, bringing the total to 352,250 metric tons. While the increase was modest, it took market participants by surprise because exchange stocks have generally been trending downward recently.

May copper fell 1.80 cents, or 2 percent, to 79.85 cents a pound on the New York Mercantile Exchange.