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10/8 8:41 Crude Oil Plummets on Concern OPEC Is Failing to Make Promised Output Cuts
By Reed V. Landberg
Crude Oil Falls on Concern OPEC Failing to Make Promised Cuts
London, Oct. 8 (Bloomberg) -- Crude oil plunged more than 8
percent, its biggest one-day drop in almost 10 months, on
traders' concerns producers are pumping more than they promised
in a series of agreements that drove prices to two-year highs.
The drop followed reports from Bloomberg and Reuters that
supply from the 11-nation Organization of Petroleum Exporting
Countries rose last month in spite of a pledge from the group to
limit production.
``The OPEC compliance numbers were part of the excuse for
funds getting out,' said Lawrence Eagles, an analyst at GNI Ltd.
``The reaction, which is extreme, shows the extent of the market
rally we've had. We've moved up from under $10 a barrel.'
Brent crude oil for November delivery fell as much as $1.80,
or 8.2 percent, to $20.28 a barrel on the International Petroleum
Exchange, its biggest one-day decline since Dec. 17, 1998. Crude
oil for November delivery on the New York Mercantile Exchange
fell as low as $20.90 a barrel in electronic trading, down $1.55,
or 6.9 percent from yesterday's close.
Oil traders are getting worried the numbers from OPEC supply
aren't showing the big cuts we saw before,' said Philip Oxley, a
broker with Credit Lyonnais Rouse Ltd. ``Hedge funds have been
liquidating their positions to lock in their profit.'
Brent crude oil has fallen 16 percent since touching a two-
year high on Sept. 29 after the first reports detailing OPEC's
output last month. Other organizations such as the International
Energy Agency, the Middle East Economic Survey and Petroleum
Intelligence Weekly also are due to publish OPEC supply figures
next week.
``This is the shakeout the market needed, but the market can
recover from here,' Eagles said.
Brent recently traded at $20.70, marking a recovery from its
earlier low.
Shares Fall
Oil company shares fell in Europe. Shell Transportation and
Trading Co. shares fell as much as 19.5 pence to 437 pence; BP
Amoco Plc fell 14 pence to 544.5; Total Fina SA dropped 2.7 euros
to 114.6; Lasmo Plc slumped 7.5 pence to 137.75 pence and
Enterprise Oil Plc plunged 14.5 pence to 371.5 pence.
``The oil exploration and production company stocks are
going to come off,' said Charlie Sharp, an analyst with T. Hoare
Canaccord. ``That should be a buying opportunity since these
companies make good profits at $20 a barrel.'
Earlier this week, Bloomberg's survey of OPEC supply found
the group produced 26.17 million barrels a day in September, up
180,000 barrels a day from August levels. The 10 OPEC nations who
are taking part in the cuts complied with 92 percent of their
promises, down from 94 percent the previous month. The Reuters
survey put compliance at 81 percent in September, down from 84
percent the previous month.
Even after the decline, oil prices have almost doubled so
far this year after 10 of OPEC's member nations, along with
countries outside the group such as Norway, Mexico, Russia and
Oman, agreed to cut supply, raising users' concern over a
shortage in the next few months.
World demand for the last three months of this year will
probably be 76.9 million barrels a day, according to the
International Energy Agency. To meet that level of consumption,
OPEC nations would need to supply 29 million barrels of crude a
day, the Paris-based agency said last month. The group currently
pumps about 26 million barrels a day.
Last month, the IEA estimated demand for oil would rise next
year to 77.1 million barrels a day, 2.4 percent more than this
year. That growth is quicker than the 1.5 percent growth forecast
for 1999 and underpins expectations that oil prices will remain
closer to current levels than last year's low of $9.55 a barrel
in the months ahead.
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