KUALA LUMPUR: Oil prices retreated to below $46 a barrel on Friday in Asia after a strong rally overnight, but traders said expectations of a
sharp production cut by OPEC will support the market.
Light, sweet crude for January delivery fell $2.41 to $45.57 a barrel in electronic trading on the New York Mercantile Exchange by mid-afternoon in Singapore. Losses were extended after news broke that a $14-billion emergency bailout for US automakers had collapsed in the Senate. Overnight, the contract surged $4.46, or 10 percent, to settle at $47.98.
David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said comments by Saudi Arabia's Oil Minister Ali al-Naimi on Thursday that November production by the world's largest exporter was in line with OPEC's recently lowered targets indicated it was serious about output cuts.
``There are expectations that OPEC will move to tighten supplies,'' Moore said. ``Oil prices softened this morning but well within the range we saw last night (despite) worries about falling consumption because of economic weakness.''
The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has signaled it plans to reduce output quotas at a meeting on Dec 17 in Algeria.
Many analysts expect a production cut of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year.
But they say the success of any production cuts in stabilizing oil price will depend on how closely OPEC members comply with it. OPEC's overall November production was well above quotas agreed to by member states, according to Platts, the energy information arm of McGraw-Hill Cos.
Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore, said oil prices were adjusting on Friday to what was seen as an ``overdone'' rally. Weaker equities markets across Asia also pressured prices, he said.
``The biggest factor is still the expectation that OPEC will make substantial production cut next week, with coordination from Russia,'' he said.
Russia has said it plans to coordinate production levels with other non-OPEC producers. On Thursday, Russian President Dmitry Medvedev suggested that Russia is ready to work with OPEC.
Oil's rally overnight was boosted by a falling dollar, which makes commodities like oil more attractive. It outweighed a warning from the International Energy Agency that energy demand will shrink this year for the first time since 1983.
