Dollar Worries, Nigerian Strike, Mexico, Petrobras
Oil prices slipped to just over $113 intraday on worries the dollar would begin to strengthen if the Fed ended their rate cuts. Helping the slide was news that workers in Nigeria would go back to work while talks continued and the 700,000 bpd Forties pipeline system in the U.K. was being restarted.
Also dragging on prices was news from the U.S. Energy Dept showing demand for finished petroleum products dropped 8.5% in February and gasoline demand fell -6.2%. Some of that was calendar and weather related but there was still a sharp demand drop.
We also saw crude inventories rise by 3.8 million barrels for the week ending April 25th according to the weekly EIA report. Expectations were for a fractional 0.3 million barrel build. Crude inventories are still 4.9% below year ago levels.
Mexico said it would reduce crude exports to the U.S. by 184,000 bpd throughout 2008 and that cutback could remain in force for the next two years. The problem is Mexico's declining production. Planned exports for 2008 were 1.678 mbpd but after the first quarter they were only able to export 1.499 mbpd, a 179,000 drop. The EIA had already predicted a 13.2% shortfall in planned exports from Mexico.
Petrobras (NYSE:PBR) said it may quadruple bond sales to help fund development of its new offshore finds. Petrobras is already planning to sell $3.6 billion in bonds in 2008 and increase borrowings by $11 billion. They are raising cash to support exploration and production on the 6-11 billion barrel Tupi field and the 33 billion barrel Carioca field. That field is still unproven but everyone has high hopes. The oil is more than six miles under the oceans surface and Petrobras needs the money to buy/rent rigs and platforms to develop that field. They just signed another contract for three rigs that rent for $600,000 per day.Jim Brown