Opec's decision to slash its oil output fails to shore up the price of oil, which plunged in a gathering storm of recession.
World markets plunge on recession fears
Plunging US stock futures triggered a trading halt ? an hour and a half before the market opened ? signalling a sharply lower opening on Wall Street amid a global market rout. Around 1200 GMT, the Dow Jones Industrial Average futures slipped 550 points, or 6.27 per cent, to 8,224 points, as panicked investors around the world sold off stocks on recession fears. The broad-market Standard & Poor's 500 futures shed 60 points, or 6.56 per cent, to 855.20 points. Trading was frozen as futures hit their maximum drops allowed by the Chicago Board of Trade (CBoT) and CME, where they are traded. Global markets sank, with London losing more than nine per cent as it struck a five-year low on news that Britain's economy shrank in the third quarter, placing it perilously close to a recession. Germany's benchmark DAX index was down 10.76 per cent, while France's CAC40 dropped 10 per cent. The dour outlook convinced investors that the world economy is headed for a long and severe downturn despite a raft of government rescue efforts aimed at pulling the financial system from the brink. It also indicated that the tremors caused by the global credit crisis may have only begun to be felt in their true scope and magnitude. "There's a lot of panic out there today," said Scott Fullman, the director of derivatives investment strategy for WJB Capital Group in New York. "People have been saying that we're in a recession. This is the realisation." Opec's decision today to slash its oil output failed to shore up the price of oil, which plummeted in a gathering storm of recession. The Organization of the Petroleum Exporting Countries, which produces 40 per cent of world crude, announced a cut to production in a bid to support crude prices which "have witnessed a dramatic collapse - unprecedented in speed and magnitude," according to an official statement.
Yet after the cartel agreed to slash output to 27.3 million barrels per day, the price of Brent North Sea crude sank close to US$61, the lowest point for 17 months. Crude futures in London and New York have plunged close to 60 per cent from record highs of above $147 a barrel reached only three months ago when supply concerns sent prices soaring. "Crude oil is heading lower again... on fears that the (Opec) cut might not be sufficient to compensate the shortfall of demand due to a global recession," said the Dresdner Kleinwort analyst Peter Fertig.
Opec said in its statement published alongside its decision to cut production that "the financial crisis is already having a noticeable impact on the world economy, dampening the demand for energy, in general, and oil in particular". "Moreover, forecasts indicate that the fall in demand will deepen, despite the approach of winter in the northern hemisphere." Opec added that its decision would be reviewed at its next meeting in Oran, Algeria, on Dec 17.
In the meantime the cartel said it "cannot be expected to bear alone the burden of restoring equilibrium (between oil supply and demand)," calling on "non-Opec producers/exporters to contribute to efforts to restore prices to reasonable levels and eliminate harmful and unnecessary fluctuations". Russia is the largest non-Opec oil producer and ahead of today's meeting the Russian president Dmitry Medvedev told the cartel's secretary general that he wanted closer co-operation with the organisation.