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Oil prices rise as OPEC upholds production quotas, US dollar falls

17th Mar 2010, 2:52 pm Oil prices rise as OPEC upholds production quotas, US dollar falls

Oil prices climbed today after OPEC (Organization of Petroleum Exporting Countries) expectedly left its production quotas unchanged, expecting a healthy demand this year while crude prices are steady at slightly above US$80/barrel, which is believed to be a comfortable level for the organization.

Last week, both OPEC and EIA (Energy Information Administration) upped their respective crude demand forecasts for this year by 0.9 mmbbls/d (million barrels per day) to 85.24 mmbbls/d and by 1.6 mmbbls/d to 86.6 mmbbls/d.

Crude also benefitted from a weaker US dollar, which declined after the Federal Reserve left the interest rates at the current ultra low levels of 0% to 0.25%. The Fed said that the strength of the ongoing economic recovery did not warrant a rate increase, while inflation was likely to stay at a low level and the job market was slow to recover. This was in line with the Fed’s repeated pledge to keep the rates exceptionally low for an extended period of time.

A stronger American currency makes dollar-denominated commodities such as crude more expensive for holders of other currencies, curbing demand and pushing down the prices.

May Brent Crude improved to US$81.46/barrel, while US light, sweet crude rose to US$82.17/barrel.

All blue chip oil and gas producers moved up, yet not by much. Cairn Energy (LSE: CNE) was in the lead, climbing 1.8%, while BG Group (LSE: BG) and Tullow Oil (LSE: TLW) followed with marginal gains. Supermajors BP (LSE: BP) and Shell (LSE: RDSB) both added nearly 1%.

Oil and gas engineering firms Amec (LSE: AMEC) and Petrofac (LSE: PFC) also posted small gains.

Midcaps generally did better with all stocks posting gains of over 1% with the exception of JKX Oil & gas (LSE: JKX) and Soco International (LSE: SIA), which added less than 1% and Salamander Energy (LSE: SMDR), which lost 1.5%.

Dana Petroleum (LSE: DNX) rose 3.3% to take the lead, while Premier Oil (LSE: PMO) and Heritage Oil (LSE: HOIL) followed, adding nearly 2%. Melrose Resources (LSE: MRS) and Dragon Oil (LSE: DGO) moved up 1.4% and 1.1% respectively.

Service companies did well as Wellstream Holdings (LSE: WSM) and Wood Group (LSE: WG) added 2.7% and 2.4% respectively.

Peru, Colombia and Cuba operating oil and gas explorer and producer Gold Oil (LSE: GOO) and oil and gas company with assets in Iraq, Syria and Gulf of Mexico, Gulfsands Petroleum (AIM: GPX) led the juniors, advancing 8% and 4% respectively. Mongolia-focused Petro Matad Ltd (AIM: MATD) added nearly 4%.

Western Europe operating oil and gas company Northern Petroleum (AIM: NOP) slipped 4%.

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