Oil’s Not Well Ahead of OPEC Meeting
By Chika Amanze-Nwachuku and Ejiofor Alike with agency report, 10.23.2008
Crude oil prices dropped below $68 a barrel yesterday, ahead of tomorrow’s meeting of the Organisation of Petroleum Exporting Countries (OPEC).
The price of crude oil has tumbled 54 per cent from its peak of $147.27 reached on July 11.
According to the Star Tribune, light, sweet crude for December delivery fell $4.03 to $68.15 on the New York Mercantile Exchange in morning trading. Earlier, it sank as low as $67.50 a barrel, the lowest level for a front-month contract since June 2007.
In other Nymex trading, heating oil futures fell 10 cents to $2.17 a gallon, while gasoline prices dropped 10.32 cents to $1.58 a gallon. Natural gas for November delivery jumped 7.6 cents to $6.92 per 1,000 cubic feet. In London, December Brent crude fell $3.72 to $66 a barrel on the ICE Futures exchange.
OPEC, which accounts for about 40 per cent of global oil supply, signalled its plans to announce an output quota reduction at an emergency of meeting in Vienna. The meeting earlier scheduled to take place November 18 was moved forward to October 24, sequel to the falling oil prices.
But the Federal Government has said it will not be in the interest of the country to cut crude oil production.
Speaking in Abuja yesterday, the Minister of State for Energy (Petroleum), Mr Odein Ajumogobia, said the country needed oil revenues and would not favour a cut in crude oil supply.
He said: “A cut in oil production does not really favour us because we are looking at huge oil revenue to come in for our budget.”
While some analysts predict an output cut of 1million barrels, others said the group might slash production by over 2 million barrels. Investors are however sceptical about how much of the cut will be implemented.
In its monthly report released last week, OPEC said it expected the demand for its crude oil in 2009 to be 31.14 million barrels daily, which is a downward revision of 190,000 bpd from last month's report and 870,000 bpd less than its estimate of demand for OPEC crude in 2008.
OPEC output in September averaged 32.16 million bpd, down 310,000 bpd on the month. The report implied that the group would need to reduce output from September production levels to meet average demand next year -- although seasonal demand normally runs higher during the northern hemisphere winter.
OPEC said its forecast was based on world economic growth slowing to 3.8 per cent this year and 3.3 per cent in 2009. The group cut its projection for world oil demand growth both this year and next but also said additional supplies from non-OPEC producers were not reaching levels previously expected. OPEC controls 40 percent of world’s oil production.
The energy markets have also been weighed down by the weak stock market, as investors grow more pessimistic about how long it will take the economy to recover from the current global financial turmoil.
