Oil prices cuts-off below $45 per barrel

December 12, 2008 · Posted in Philippine News

Oil prices continue to decline below $45 a barrel Friday in reaction to fresh evidence of the US recession and news that a $14 billion emergency bailout for US automakers had collapsed in the Senate.

The decline passed over most of the strong gains made in the previous day’s session, but traders said expectations of an important production cut by OPEC would help keep a floor under prices.

By mid-afternoon in Europe, light, sweet crude for January delivery was down $3.42 to $44.56 a barrel in electronic trading on the New York Mercantile Exchange. Overnight, the contract surged $4.46, or 10 percent, to settle at $47.98.

In London, January Brent crude fell $2.69 to $44.70 a barrel on the ICE Futures exchange.

Friday’s data showing that US retail sales fell 1.8 percent in November, the fifth monthly slide in a row, and that wholesale prices dropped 2.2 percent last month escalated concerns about a deepening recession.

While falling prices are appealing to consumers, a prolonged, widespread decline would do serious economic damage, dragging down incomes, cutting home prices even further and shrinking corporate profits.

David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said comments by Saudi Arabia’s Oil Minister Ali al-Naimi on Thursday that November production by the world’s largest exporter was in line with OPEC’s recently lowered targets indicated it was serious about output cuts.

“There are expectations that OPEC will move to tighten supplies,” Moore said. “Oil prices softened this morning but well within the range we saw last night (despite) worries about falling consumption because of economic weakness.”

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has signaled it plans to reduce output quotas at a meeting Dec. 17 in Algeria.

Many analysts expect a production cut of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year.

But they say the success of any production cuts in stabilizing oil price will depend on how closely OPEC members comply. OPEC’s overall November production was well above quotas agreed to by member states, according to Platts, the energy information arm of McGraw-Hill Cos.

Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore, said oil prices were adjusting Friday to what was seen as an “overdone” rally. “The biggest factor is still the expectation that OPEC will make substantial production cut next week, with coordination from Russia,” he said.

Russia has said it plans to coordinate production levels with other non-OPEC producers. On Thursday, Russian President Dmitry Medvedev suggested that Russia is ready to work with OPEC.

“Both the Russian government and Russian producers have a common interest in higher prices and this is increasing the chance of a coordinated effort to curb supplies,” said Olivier Jakob of Petromatrix in Switzerland.

Oil prices have fallen 70 percent since peaking at $147.27 in July. After hitting $40.50 a barrel last week, some oil traders believe that if the market has not bottomed out, it is close to doing so.

In other Nymex trading, gasoline futures fell 6.38 cents to $1.0148 a gallon. Heating oil dipped 6 cents to $1.4466 a gallon and natural gas for January delivery lost 10.8 cents to $5.49 per 1,000 cubic feet.