Monday, January 8, 2007

New Floor on Oil Prices?

Oil prices rose Monday, supported by reports that OPEC oil ministers have begun talks on another potential cut and worries about energy shortages in parts of Europe as the fallout of a dispute between Russia and Belarus.

The rebound came after last week's plunge amid a warmer-than-normal winter in the U.S. Northeast, a key region for heating oil demand.

Russia's Interfax news agency reported that Belarus had ordered a halt to deliveries of Russian oil that goes via its territory to Germany, Poland and Ukraine.

The head of the Russian state pipeline operator Transneft, Semyon Vainshtok accused Belarus of siphoning off Russian oil destined for Europe since Saturday, the RIA-Novosti news agency reported.

OPEC is notoriously undisciplined, so any news about a production cut has to be taken with a grain of salt. However, this is the third time in the last 6 months we have heard about OPEC looking to cut production in some way.

I should also add that the latest oil price drop coincided with another "rebalancing" of a Goldman Sachs commodities index.

I can't speak to the geo-political situation in Eastern Europe. However, it may provide a short-term bump in prices.