BLBG: Crude Oil Falls After OPEC Delays Decision to Reduce Production
By Mark Shenk
Dec. 1 (Bloomberg) -- Crude oil fell more than $3 a barrel after the Organization of Petroleum Exporting Countries deferred a decision to reduce output until its next meeting on Dec. 17.
OPEC said it will use the time to gauge the impact of a 1.5 million-barrel reduction agreed to in October. The group will trim production at its next meeting, its secretary general said today. Slowing global growth means demand will be “much lower” than expected a month ago, OPEC said after a Nov. 29 gathering.
“OPEC sent a valentine to the bears,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Rather than announce a production cut over the weekend, they said they might cut when they next meet on Dec. 17. It looks like they missed an opportunity to support prices by making a cut sooner rather than later.”
Crude oil for January delivery declined $3.43, or 6.3 percent, to $51 a barrel at 10:05 a.m. on the New York Mercantile Exchange. Oil prices have tumbled 65 percent since reaching a record $147.27 on July 11 as the U.S., Europe and Japan face their first simultaneous recession since World War II.
OPEC ministers put off debate on a second cut in output in as many months during the Nov. 29 meeting in Cairo. The group will reduce crude production when it meets in Oran, Algeria this month, OPEC Secretary General Abdalla el-Badri said. Oil demand is likely to drop further next year, he said.
“For sure there will be action,” at the meeting, el-Badri told reporters in Tehran today, declining to specify the amount of output that may be curbed. “The market is oversupplied,” el- Badri said. “We are seeing the stocks are very high.”
Prices around $75 a barrel would be “fair” and would support investment in new fields, Saudi Arabian Oil Minister Ali al-Naimi said over the weekend. The global market is oversupplied by more than 2 million barrels a day, Iranian Oil Minister Gholamhossein Nozari said yesterday.
Combination of Factors
“OPEC’s postponement of a decision on output combined with the fact that there’s nothing out there to take cheer from about the economy is sending prices lower,” said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. “The path of least resistance remains down.”
Manufacturing in the U.S. contracted in November at the fastest pace in 26 years, putting American factories at the forefront of a global industrial slump, a report showed today. The U.S. is the biggest oil consumer.
The Institute for Supply Management’s factory index dropped to 36.2, the lowest level since 1982, the Tempe, Arizona-based group reported. A reading of 50 is the dividing line between expansion and contraction.
A European manufacturing index based on a survey of purchasing managers by Markit Economics dropped to 35.6 from 41.1 in October, remaining below the expansion threshold of 50 for a sixth month. That’s the lowest since the survey began in 1998 and less than an initial estimate of 36.2 published on Nov. 21.
U.K. manufacturing shrank at the fastest pace in at least 16 years in November, a separate report showed.
Brent crude oil for January settlement fell $3.43, or 6.4 percent, to $50.06 a barrel on London’s ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
