Crude Falls on fear OPEC Won't Win Needed Output Cuts
<New York, Dec. 10 (Bloomberg) -- Crude oil fell almost 5 percent on skepticism
that OPEC will succeed in convincing rival producers to reduce exports enough
to compensate for dwindling demand.
The Organization of Petroleum Exporting Countries has failed to win all the
output cuts it demanded from non-member countries, including Russia, Norway
and Mexico. The cutbacks are needed to ease the glut that has left oil prices 36
percent lower than at this time last year.
``The fundamentals of the oil market are terrible,'' said Michael Fitzpatrick, a
broker at Fimat USA Inc. in New York. ``Demand appears to be contracting,
which is leading to swelling supplies, and there is yet to be an agreement to cut
output.''
Crude oil for January delivery fell as much as 89 cents, or 4.7 percent, to $18.15
a barrel on the New York Mercantile Exchange. Oil futures have plunged by a
third since the Sept. 11 terrorist attacks, which deepened the recession that
curbed U.S. demand. Prices touched a 2 1/2-year low of $16.70 on Nov. 19.
In London, Brent crude oil for January settlement fell as much as 93 cents, or 4.9
percent, to $18.10 a barrel on the International Petroleum Exchange.
OPEC has said it would lower output quotas by 1.5 million barrels a day, or 6.5
percent, if other producers cut 500,000 barrels. So far, non-OPEC exporters are
short of that target, analysts said. The group expects demand to fall next year for
the first time in more than a decade.
Jan. 1 Deadline
Russia, the largest producer and exporter outside of OPEC, has pledged to trim
exports by 150,000 barrels a day. Norway has said it will reduce daily output
between 100,000 and 200,000 barrels. Mexico will trim 100,000 barrels, and
Oman has pledged a cut of 25,000 barrels. At most, the cuts would total 475,000
barrels, though Norway has yet to announce a final figure.
OPEC has set a Jan. 1 deadline for cooperation from other producers for its cuts
to take effect. Prices had risen 2.7 percent Friday on speculation that an
agreement might be reached over the weekend.
``As long as they don't have an official deal, people will be cautious about buying''
crude oil contracts, said Phil Flynn, vice president and senior market analyst at
Alaron Trading Corp. in Chicago. ``Every day that goes by when OPEC and
non-OPEC are not shaking hands, it leads to concern that they won't get a deal
done.''
OPEC, which accounts for about one-third of the world's supply, has already
trimmed output targets three times this year, by a total of 3.5 million barrels a
day, or 13 percent, to bolster prices as slowing world economies reduced
demand.
Demand Forecast
World oil use will decline by 300,000 barrels a day in the first and second
quarters of 2002 and by 50,000 barrels in the third quarter, compared with the
same periods this year, Adnan Shihab-Eldin, OPEC's head of research, said at a
conference in Moscow.
Output reductions must extend at least until June because of the demand
outlook, Shihab-Eldin said. ``The duration of cuts is as important as volume,'' he
said.
Oil use has risen every year since at least 1986, according to the International
Energy Agency, which advises the top oil- consuming countries. The agency has
predicted a 600,000-barrel-a- day increase next year. Its next forecast is due for
release on Wednesday.>
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