INFOLINE: Crude oil tumbles despite OPEC`s production cut
Oil futures touched US$62.65, the lowest since May 31, 2007. OPEC agrees to cut production for the first time in almost two years
Oil prices declined to a 16-month low on Friday, as nagging fears of a global economic recession offset a move by the Organisation of Petroleum Exporting Countries (OPEC) to slash production.
OPEC will slash its oil production quota of 28.8mn barrels per day by 1.5mn barrels, beginning November 1, as the world's financial crisis dampened demand for energy, the cartel said on Friday at a meeting in Vienna.
Crude oil for December delivery fell US$3.15, or 4.6%, to US$64.69 a barrel at 11:03 a.m. on the New York Mercantile Exchange. Futures touched US$62.65, the lowest since May 31, 2007, and are down 26% from a year ago.
Oil prices have dropped 56% from the record US$147.27 a barrel reached on July 11 as stock markets declined.
Crude's losses came amid broad declines in commodities and stock markets. The Dow Jones Industrial Average slumped more than 400 points in early trades. Gold futures were heading for their worse week since at least 1980.
"The slowdown in oil demand is serving to exacerbate the situation in a market which has been over-supplied with crude for some time," OPEC said in its statement. "Forecasts indicate that the fall in demand will deepen, despite the approach of winter in the northern hemisphere."
At a meeting last month, OPEC urged greater compliance with existing quotas, saying that would reduce supply by about 500,000 barrels a day. OPEC members excluding Iraq and Indonesia last month pumped 390,000 barrels a day more than their combined quota of 28.8mn barrels a day.
The last time OPEC decided to slash official quotas was at a December 2006 meeting in Abuja, Nigeria. The 500,000 barrel a day cut took effect in February 2007, expanding an earlier reduction agreed in October. The cuts were reversed later in 2007 as oil rallied.
OPEC said earlier this month that global oil consumption will grow 550,000 barrels a day this year compared with a year ago, down 330,000 barrels from last month's forecast. Total consumption will stand at 86.5mn barrels a day.
Meanwhile, oil options contracts to sell crude at US$50 by December almost tripled today after an OPEC decision to slash production failed to allay concerns that the global economic slump is hurting demand.
The cost of the US$50 December 2008 put option, which gives the holder the right to sell oil futures at US$50 a barrel, rose as much as 142% to US$1.50 on the New York Mercantile Exchange, compared with 62 cents yesterday.
