Monday October 20, 2008

OPEC plans production cut as crude oil threatens to head toward $50

bloomberg.com :

OPEC, the supplier of more than 40% of the world's oil, plans to cut output for the first time in almost 2 years as the worst financial crisis since the 1930s sends crude toward $50 a barrel. Options contracts to sell oil at $50 by December soared 50-fold in the past 2 weeks on NYMEX. Goldman Sachs and Merrill Lynch analysts say crude oil, which fell more than 50% from a record high in July to a 14-month low last week, may drop another 44% should the world economy slip into a recession. OPEC, which meets Oct. 24 in Vienna, 3 weeks earlier than planned, is facing the weakest growth in demand since 1993. Members may cut daily output by as much as 2 million barrels, President Chakib Khelil said yesterday [19 Oct 2008]. Venezuela and Iran may struggle to balance budgets because they rely on energy sales for more than half of their revenue, requiring oil prices above $80, while Saudi's threshold is said to be $65.

GDP in the Gulf Cooperation Council would shrink 25% if oil averaged $50 next year, ING Bank estimates. Khelil, also Algeria's oil minister, said that while there is consensus for a cut, there is no agreement on its size. It may be necessary to make the cuts in two stages to ensure price stability, he said. OPEC is likely to cut by a million barrels a day on Oct. 24 and will need to announce further reductions to prevent prices falling below $60 a barrel, Goldman Sachs said. OPEC already agreed to curb production by observing output quotas after a Sept. 10 meeting to lower supplies by 500,000 barrels a day. US motorists are driving less after gasoline pump prices topped $4 a gallon in July. As demand declined, OPEC trimmed supplies 3.8% to 31.8 million barrels a day in Sep 2008, according to tanker-tracking service PetroLogistics.

- Now with the only remaining question being how much OPEC is going to cut their production by, the NYMEX crude oil prices have rebounded above the $68.97 low to hover in a $73-74 range. It is probably going to remain range-bound while the market weighs any news or rumours regarding the size of the OPEC cuts versus the massive deleveraging and panic selling going on.

See also :

1. OPEC announces production cut of 520,000 barrels per day
2. NYMEX crude oil drops below $80 as financial market meltdown continues
3. NYMEX crude oil falls for the third day to below $72 on recession concern

(2008-10-20 23:58:01 SGT) [Energy] Permalink Comments [1]

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