MercoPress. South Atlantic News Agency

Falling oil market ignores OPEC production cut

Crude prices plunged Friday despite a hefty OPEC cut in production as recession fears gripped global markets in panic, heightening concerns about declining energy demand. New York's main contract, light sweet crude for December delivery, tumbled to 64.15 USD a barrel, down 3.69 from its close Thursday.

In London, Brent North Sea crude for December delivery dropped 3.42 to settle at 62.05 USD per barrel. The Organization of Petroleum Exporting Countries said Friday its members would slash output by 1.5 million barrels per day (5% of its production), effective November first, in an attempt to stabilize plunging oil prices as recession looms. Analysts had expected OPEC to cut its daily output by at least one million barrels as the global economic slowdown amid a worsening financial crisis slashes demand for energy. OPEC, which produces 40% 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. Traders said OPEC's action might not be enough to arrest oil's slide of more than 56% percent from a record 147 USD a barrel in July. Drops in motor fuel demand amid the economic downturn have been dramatic. "Already we've seen demand destruction of 2 million barrels per day. I'm not convinced this cut will be enough to stop the slide," said Rob Laughlin, at broker MF Global. Signs of a sharp slowdown in Britain, Europe and the US intensified fears of deep global recession. The U.S. Energy Information Administration said this week that oil products demand in the world's biggest energy consumer during the previous four weeks was 18.7 million barrels per day, down 8.5% from a year ago. Meanwhile, the U.S. Transportation Department said motorists drove 15 billion miles less in August than they did a year earlier for the biggest decline in any month ever recorded. We believe this week will mark the start of a new quota reduction cycle by OPEC and it will continue through 2009," Deutsche Bank analyst Michael Lewis said in a note. "However, we believe production cuts will not rescue the oil price," he said. The bank expects US crude oil prices will hit 50 USD a barrel next year. The International Energy Agency, which advises industrialized consumer countries, was critical of OPEC's cut. "It's not a helpful decision because markets are quite nervous," Eduardo Lopez, senior analyst at the IEA's oil market division said. From Washington the White House denounced what it called OPEC's "anti-market" decision to cut production, even though oil prices subsequently slumped on fears of a global recession. British Prime Minister Gordon Brown was "disappointed" by OPEC's output reduction and urged oil producers to show a responsible attitude in the current crisis, his spokesman said.