and now, its too much oil...

PROBLEMS !!!!!


Glut of oil creates short-term storage problems

NEW YORK, Dec 20 — Traders locking up storage space for crude created a huge rift in prices yesterday between oil that must be delivered in several weeks and oil that can be taken in February.
The January contract for crude expired yesterday and with stockpiles rising at the key storage facility in Cushing, Oklahoma, the price dropped close to a five-year low as brokers and traders attempted to unload supply for whatever price they could get.
"If you could find storage for it, it's a way to get rich real quickly," said Peter Beutel, an analyst with Cameron Hanover.
With space tight amid a glut in supply, light, sweet crude for January delivery fell US$2.35 to settle at US$33.87, a level last seen in early 2004.
Most traders focused on the February contract, however, which rose 69 cents to settle at US$42.36 a barrel on the New York Mercantile Exchange. Because crude contracts bought for February also bought more time to find storage, it sold at a premium of more than US$7 a barrel compared contracts expiring yesterday.
While the January price was largely discounted because the volumes were so low, analyst Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said it did provide a downside target for future sales.
The market is sending strong signals that an oversupplied market will remain in place for some time, he said.
"I think it's going to work its way down to today's lows in the January futures," Ritterbusch said.
Consumers and industries are consuming much less energy than they had before the United States went into recession last December. That has led to enormous volatility in crude markets, a topic of discussion yesterday from the trading floors of New York to a gathering of world leaders in London.
At an energy summit yesterday in London, British Prime Minister Gordon Brown warned that a failure to stabilise oil prices could cost the global economy trillions.
"Wild fluctuations in market prices harm nations all round the world," Brown said. "They damage consumers and producers alike."
Opec secretary-general Abdullah El-Badri acknowledged the problem.
"We all know that extreme oil prices whether too high or too low are as bad for producers as they are for consumers," El-Badri said.
Meanwhile, Zeljko Bogetic, the World Bank's chief economist in Russia, told investors that the oil-rich nation would come under crippling financial pressure and may need to take out loans if crude prices do not rebound.
"If oil prices in 2009 and 2010 average US$30 a barrel, that would be a nightmare scenario for a global economy," Bogetic said.
Russia, which has used oil profits during the past eight years to pay down most of its foreign debt, could turn from creditor to borrower if current trends continue.
At US$50 a barrel, Russia could drain much of its reserve funds and run budgetary deficits, Bogetic said.
Earlier this week, the 13-nation Organisation of Petroleum Exporting Countries slashed its output quota by 2.2 million barrels a day in a bid to bolster prices that have slid about 70 per cent since July.
Still, crude prices tumbled this week amid a bevy of dour economic reports suggesting demand for energy will continue to erode.
Beutel said the oil market should be growing more bullish after such huge declines, but the steady stream of bad economic news has made everyone skittish.
"Until people can just take their eyes off of the demand for five seconds, it doesn't seem like this market is going to have an easy time moving higher," Beutel said.
There was word yesterday that Opec may meet again in Kuwait on Jan 19 to discuss further production cuts.
Meanwhile, the national retail average price for a gallon of regular gas rose three-tenths of a penny to US$1.673 a gallon overnight, according to auto club AAA, the Oil Price Information Service and Wright Express. That is about 37 cents a gallon below what it was a month ago and more than US$2.43 below where it was in July when prices peaked at US$4.11 per gallon.
Before yesterday, retail gasoline prices had fallen for 86 straight days. — AP