NEW YORK – OIL plunged more than 9 per cent to US$49 (S$75) a barrel on Monday after Opec deferred a decision on new supply cuts at a meeting over the weekend.
The producer group delayed a decision on output until later this month as Saudi Arabia and other Gulf members called for greater compliance with existing cuts agreed to since September to help stem oil’s fall from highs over US$147 a barrel struck in July.
US crude settled down US$5.15 at US$49.28 a barrel, the lowest settlement since May 2005. London Brent crude fell US$5.52 to settle at US$47.97 a barrel.
‘The major motivation for sellers is the discounting of the Opec decision … but motivation is not hard to find (as) the elements propelling prices from 2003 on have largely dissipated,’ said Mr Mike Fitzpatrick, vice-president at MF Global, in a report.
Surging demand from emerging economies sent oil and other commodities on a six-year rally, but prices have tumbled since July as the economic crisis erodes demand in the United States and other big developed consumer nations.
The National Bureau of Economic Research said the US economy slipped into recession in December 2007 and added the downturn could be the worst since World War Two.
Federal Reserve Chairman Ben Bernanke warned on Monday that the US economy remained under considerable strain and said policy makers must be ready to take decisive action to protect jobs and growth.
US stocks extended losses on Monday after manufacturing data showing factory activity fell in November to its weakest level since the 1981-1982 recession increased worries about the world economic slump.
‘The Opec meeting last weekend shows you that there’s not a lot the group can do to stop the free-fall in oil prices. On top of that, the latest US manufacturing data is playing into the market psychology,’ said Mr Phil Flynn, analyst for Alaron Trading in Chicago.
‘The weakness in the manufacturing sector foretells a bad demand picture for oil.’ Opec’s secretary general said the cartel is ready to cut production by a significant amount when the group next meets on Dec 17 in Algeria.
Saudi Arabian Oil Minister Ali al-Naimi told Saudi-owned al-Hayat newspaper that Opec would not need to make a further cut in oil supply when it meets in Algeria if producers comply with previous curbs and fuel stocks decline.
The group has agreed to trim 2 million barrels per day (bpd) from production since September.
Saudi Arabia over the weekend said US$75 a barrel would be a ‘fair’ price for oil, the first time in years that the world’s biggest exporter has identified a target for crude prices.
A Reuters poll of analysts ahead of US weekly government data to be released on Wednesday forecast a 1.8 million barrel build in crude stocks in the week to Nov 28, a 700,000 barrel rise in distillate inventories, and a 1.4 million barrel increase in gasoline stocks. — REUTERS
Source: StraitsTimes
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