Oil drops 9% to $49 as OPEC defers cuts
Reuters
First Posted 05:45:00 12/02/2008
Filed Under: Oil & Gas - Upstream activities, Markets & Exchanges
NEW YORK — Oil prices plunged more than nine percent to $49 a barrel on Monday after OPEC deferred a decision on new supply cuts at a meeting over the weekend.
The producer group delayed a decision on output until later this month as Saudi Arabia and other Gulf members called for greater compliance with existing cuts agreed to since September to help stem oil's fall from highs over $147 a barrel struck in July.
US crude settled $5.15 lower at $49.28 a barrel, the lowest settlement since May 2005. London Brent crude fell $5.52 to settle at $47.97 a barrel.
"The major motivation for sellers is the discounting of the OPEC decision ... but motivation is not hard to find (as) the elements propelling prices from 2003 on have largely dissipated," said Mike Fitzpatrick, vice president at MF Global, in a report.
Surging demand from emerging economies sent oil and other commodities on a six-year rally, but prices have tumbled since July as the economic crisis erodes demand in the United States and other big developed consumer nations.
Federal Reserve Chairman Ben Bernanke warned on Monday that the US economy remained under considerable strain and said policy-makers must be ready to take decisive action to protect jobs and growth.
US stocks extended losses on Monday after manufacturing data showing factory activity fell in November to its weakest level since the 1981-82 recession increased worries about the world economic slump.
"The OPEC meeting last weekend shows you that there's not a lot the group can do to stop the free-fall in oil prices. On top of that, the latest US manufacturing data is playing into the market psychology," said Phil Flynn, analyst for Alaron Trading in Chicago. "The weakness in the manufacturing sector foretells a bad demand picture for oil."
OPEC's secretary general said the cartel is ready to cut production by a significant amount when the group next meets on Dec. 17 in Algeria.
"We are all geared towards a cut in Algeria," Abdullah al-Badri told a news conference in Tehran, two days after the group's meeting in Cairo.
"The market is oversupplied because we are seeing stocks as very high, about 55 to 56 days," he told reporters earlier.
Saudi Arabian Oil Minister Ali al-Naimi told Saudi-owned al-Hayat newspaper that OPEC would not need to make a further cut in oil supply when it meets in Algeria if producers comply with previous curbs and fuel stocks decline.
The group has agreed to trim two million barrels per day (bpd) from production since September.
Saudi Arabia over the weekend said $75 a barrel would be a "fair" price for oil, the first time in years that the world's biggest exporter has identified a target for crude prices.
"I believe $75 is the price for the marginal producer," Naimi told reporters in Cairo.
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