Oil prices fall as OPEC keeps supply levels steady
OIL prices dropped yesterday after the Organisation of Petroleum Exporting Countries (OPEC) decided to forgo further production cuts in favor of boosting compliance with earlier ones.
Benchmark crude for April delivery fell 88 cents to $45.37 a barrel in morning trading on the New York Mercantile Exchange after dipping as low as $43.62 overnight.
In London, Brent prices lost $1.26 at $43.67 on the ICE Futures exchange.
Members of the OPEC said Sunday they will try to stick more closely to the group's current output quotas but will not make further cuts.
Phil Flynn, an analyst at Alaron Trading Corp., said de-facto OPEC leader Saudi Arabia recognizes that when people aren't buying the oil that's already being pumped, production cuts don't matter.
"I think they're starting to realise that they have to stimulate this economy with lower prices before they can get the long-term demand growth that they're looking for," Flynn said. "They've got to get back in step with the rest of the world that is trying to stimulate the economy as opposed to trying to slow it down by raising prices."
Oil prices rose from less than $35 a barrel last month as investors anticipated the cartel would cut production by up to one million barrels a day on top of 4.2 million barrels of reductions announced since September.
While some of the oil producers at Sunday's meeting said they supported another cut, Saudi Arabia argued instead for stricter compliance with the existing output reductions. OPEC is overshooting its daily target level of just under 25 million barrels a day by about 800,000 barrels.
Flynn said the market should have known that if the Saudis weren't going to cut, no one else would.
A new cut remains an option during a May 28 OPEC special session to review prices and supply.
Saudi Arabia's oil minister said yesterday that petroleum-producing countries need a price of at least $60 a barrel to bring more energy resources on the market.
"If we want all hydrocarbon resources developed worldwide, $40 is not enough," Ali al-Naimi told reporters in Geneva, where he was attending an energy conference.
Analysts noted the presence of Russian Deputy Premier Igor Sechin at the Vienna meeting.
Russia has toyed with the idea of working more closely with OPEC to control the flow of oil to the world and Sechin on Sunday announced that his country is reducing crude sales.
Analyst and trader Stephen Schork said Sechin discussed having a permanent Russian representative at OPEC's Secretariat.
"Is this the first step to Russia joining OPEC? Stay tuned," Schork said.
Oil traders will likely turn their attention to global crude demand and the possibility of a second-half economic recovery.
Federal Reserve Chairman Ben Bernanke said Sunday on CBS' "60 Minutes" broadcast that the U.S. recession "probably" will end this year if the government succeeds in bolstering the banking system.
However, Bernanke said that even if the recession, which began in December 2007, ends this year, the unemployment rate will keep climbing past the current 8.1 per cent, the highest level in 25 years.
Flynn said with continued weak heating demand and below-normal industrial demand, another round of weak prices is in the foreseeable future.
"It's getting harder to get excited about being long oil," he said.
In other Nymex trading, gasoline for April delivery fell 0.66 cent to $1.3463 a gallon, while heating oil dropped 2.87 cents to $1.1685 a gallon. Natural gas for April delivery was down 10.3 cents to $3.829 per 1,000 cubic feet.
