Oil slips to $43 as Opec deal awaited
London, December 17, 2008
Oil slipped toward $43 on Wednesday as the market awaited an announcement from an Opec meeting in Algeria widely expected to agree a big cut in production in an attempt to halt a collapse in oil prices.
A rise in the dollar also put pressure on the oil market. The U.S. currency had earlier provided support for oil by falling after a bigger-than-expected cut in interest rates by the U.S. Federal Reserve on Tuesday.
Oil ministers from the Organization of the Petroleum Exporting Countries appeared to be near consensus on a cut in output of 2 million barrels per day (bpd), the biggest reduction ever by the producer group.
But traders said such a cut in production had already been widely anticipated by the oil market and some investors were worried that, as the Opec meeting dragged on, the eventual announcement could disappoint.
US light crude for January delivery, due to expire on Friday, were down 28 cents at $43.32 a barrel by 10:50 a.m. EST after having fallen to a low of $42.56 in the previous session, just off a four-year trough of $40.50 a barrel hit on December 5.
London Brent crude for February delivery was up 62 cents at $47.27. 'A 2.0 million bpd cut in production now runs the risk of a 'Buy the rumor Sell the fact' scenario,' Rob Laughlin, analyst at MF Global said.
'It would have been bullish for the market a week ago. But we have been warned to expect it now so I think the market will go up initially but then come down further.'
A dealer at a large U.S.-owned trading house agreed. 'I think Opec will struggle to support this market. A 2 million bpd cut may prevent complete meltdown but I don't think it will cause a big rally either. The data are overpowering. Oil demand is falling so fast that is hard to keep up,' he said
Oil prices have tumbled more than $100 from the July all-time record above $147 a barrel as financial turmoil has slowed global economic growth and hit fuel demand.
Opec is desperate to halt the slide in prices. Economists say that at $40 per barrel, 11 of its 12 members, as well as Russia and Mexico, face budget deficits.
Analysts said any extra support Opec could get from non-members would help support oil prices.
Ex-Soviet Azerbaijan became the only non-Opec producer on Wednesday to offer a real output cut to support oil prices, while Russia refrained from making firm commitments despite previous declarations that it would.
Mexico, which supported Opec cuts in 1999 and 2001, said it would not cut as its output was declining.-Reuters