Oil prices fall amid predictions of further weakness after Opec deferred a decision on a production cut.
Opec delays cuts; oil declines
Oil prices fell today amid predictions of further weakness after Opec deferred a decision on a third production cut. The decision to delay further action was widely expected after key Opec ministers signalled it ahead of their meeting last Saturday in Cairo. Still, the hiatus may be heightening concerns about growing stocks of unsold oil overhanging the market. "There will most likely be repercussions, and we fully expect the market to test the US$50 level again," said Jonathan Kornafel, the Asia director of the New York fund management firm Hudson Capital Energy. Oil ministers at Saturday's meeting discussed how much more crude production they would need to cut later this month, Opec delegates said. Most, including Gulf producers led by Saudi Arabia, felt between 1 million and 1.5 million barrels per day (bpd) should be removed from the market, the delegates added. The Opec secretary-general, Abdalla el Badri, predicted the group would announce a substantial reduction at its Dec 17 meeting in Oran, Algeria. "There will be action there," he said on the sidelines of an energy conference in Tehran. "It will be a good amount, a good quantity." "The market is oversupplied," Mr Badri added. "We are seeing the stocks are very high." Oil dropped more than $3 today, retreating to below $52 a barrel after rising stock markets helped to bolster the commodity on Sunday. Earlier this month, crude fell below $49 a barrel to its lowest level in more than three years. It has plunged roughly 65 per cent since peaking at a record $147.27 in July. Although the expectation of an Opec production cut would normally prevent prices from sliding, analysts were concerned that investors would maintain their recent focus on weakening global demand for crude, and especially on rising oil stocks in developed countries. "Evidently there is too much oil around," said Jan Stuart, an economist at the US investment bank UBS. "The longer Opec waits to cut supplies, the higher stocks rise and the longer we think it will take for fundamentals to tighten once the tide does turn." In the run-up to Saturday's Opec meeting the Qatari oil minister, Abdullah al Attiyah, said the oil market was reacting to the global economic crisis and its effect on oil demand. Opec members "clearly see the gathering storm clouds", the international consulting firm PFC Energy said in a research note after the meeting. "The discussion is about how bad it could get and how much Opec will need to trim production to account for weaker oil demand." PFC said a recent and possibly ongoing dispute between Opec members over compliance with production cuts announced on Oct 24 reflected "a deeper anxiety" over the impact of the global economic downturn on oil demand next year. "The lingering sense left by the Cairo meeting is that prices may have to drop further to focus the minds of some within the organisation on the need for cohesive action," the firm said. Opec cut production twice, in September and October, pledging to remove a total of 2 million bpd of crude output from the market. Oil prices, however, continued to slide. While some analysts said crude prices had fallen so low that the next Opec cut would surely prompt a market reaction, others remained sceptical. "The impact of future cuts will be muted by the fact that spare capacity has been on the increase," said Gerard Burg, the head of energy and minerals economics at National Australia Bank. As Opec has debated the supply side of the oil equation, the flow of news concerning faltering demand has continued unabated.The latest US government figures showed crude inventories in the world's biggest oil-consuming nation up 2.3 per cent in the week ended Nov 21 - their steepest increase in six months. Global oil stockpiles are equivalent to 56 days of demand, when 52 days would be usual at this time of year, Mr Badri said last week. Weak oil prices and tumbling shipping fees have recently prompted trading companies to hire supertankers to use as floating oil storage depots, in the hope of selling the oil at higher prices later. The oil traders are among those still betting on Opec to remove excess supply from the market. In an unusual move, as Opec has recently shied away from indicating an oil price target, Mr Badri said today that crude in the range of $70 to $90 a barrel would be "reasonable". On Thursday, Saudi Arabia's King Abdullah named $75 a barrel as a "fair" price. firstname.lastname@example.org