Opec scepticism pushes oil below $58
Oil prices fell below $58 a barrel on Friday, even though Organisation of the Petroleum Exporting Countries (Opec) made a deeper output cut than expected, on concerns that some of the group’s members may fail to comply with the curbs.
“There’s still a degree of scepticism over whether they will deliver all the cuts,” said Tobin Gorey, commodity strategist at Commonwealth Bank of Australia.
United States crude fell 65 cents to $57,85 a barrel by 3.10pm GMT, less than a dollar above the 2006 low touched a week ago. London Brent crude fell 69 cents to $60,18 a barrel.
Opec ministers agreed early on Friday to reduce output by 1,2-million barrels per day (bpd), 200 000 bpd more than expected.
Some ministers said a further cut of 500 000 bpd could follow when Opec next meets in Nigeria in December. They said they are concerned about high fuel stocks in consumer countries, particularly in the US, and a projected drop in demand for Opec oil in 2007 as competitors bring more supplies online.
The group, which supplies about a third of the world’s crude, said in a statement after an emergency meeting in Doha that oversupply has destabilised the oil market.
The cut was its deepest since January 2002 and is equal to about 4,3% of September supply.
“It was a surprise.
It shows the determination of Opec,” Tetsu Emori, chief strategist at Mitsui Bussan Futures in Tokyo, said. “They obviously wanted to send a message to the market.”
“This is not the end of the road because we have another meeting coming up,” Saudi Arabia’s Oil Minister, Ali al-Naimi, told Reuters.
Al-Naimi said that Saudi Arabia fully backs the Opec cut and has already notified customers of lower supply. The world’s largest exporter will shoulder about 32% of the cut, amounting to 380 000 bpd.
Ministers’ failure to speak with one voice before the hastily arranged talks had deepened oil’s losses of about 25% from a mid-July peak of $78,40 a barrel.
To sidestep the issue of quotas and market share that analysts said had begun to cost the cartel credibility, Opec published only a list of individual cutbacks but left formal quotas unchanged.
Opec’s cut also signalled that it would defend a price of about $60 a barrel, high enough to justify its investment in future production capacity but low enough to allow economic growth and deter a flood of alternative fuels.
“The drop in prices that has already occurred has had a remarkably positive influence on consumer attitudes and spending in the US,” said Adam Sieminksi of Deutsche Bank. “The shopping season is coming up and it’s going to be a lot better with oil at $60 than at $80.”
The producer curbs will begin to bite just as the northern hemisphere heads into winter, when oil demand surges. Private weather forecaster AccuWeather said this week that the US East Coast should be chillier than normal this year.—Reuters
Additional reporting by Jonathan Leff in Singapore and Osamu Tsukimori in Tokyo