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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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From: CalculatedRisk	12/3/2004 10:48:20 PM
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OPEC to CUT production? Oil price falls may force Opec output cuts By Kevin Morrison and Javier Blas in London Published: December 3 2004 19:52 \| Last updated: December 3 2004 19:52 news.ft.com Falling oil prices may prompt Opec to agree to reduce its output when it meets next week in Cairo, two officials of the oil cartel hinted on Friday. “A consensus is building around a strong compliance with the quotas,” a senior delegate told the Financial Times. Opec is currently producing 1.5m b/d above its official 27m b/d production quota. “Opec will not consider a [quota] cut unless the price continues to fall,” he added. “Everything depends on the extent of the decline.” The delegate's comments follow a near-15 per cent slide in prices over the past four days. On Friday, the fall was temporarily stalled when another official told Reuters: “If you see the slide continuing we may have to take some action. We will need to be sure that the price is falling because of fundamentals and we will need to be sure of forecasts that there is oversupply.” Benchmark Brent crude fell 73 cents to $39.42 a barrel on Friday, off its low for the day of $38.85. The decline from October's peak of more than $51 has been accelerate this week by an unexpected increase in US heating-oil inventories, which typically decline in the winter months. Iran and Venezuela have already called for Opec to adhere to its quotas because of the heavily discounted price many Opec members are receiving for their exports compared with benchmark futures prices. Dubai crude is trading around $32.50, at a time when the US dollar is hitting new lows against the euro. Another Opec official said Opec was aware of the sensitivities in any decision that resulted in a production cut. “We do not want to be defending prices at a ridiculously high level because that does not help anybody, but at the same time many members are seeing large discounts for their crude against the WTI [US benchmark],” the official said.

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