Oil Extends Drop as Financial Crisis May Outweigh OPEC Cut

By Yuji Okada and Angela Macdonald-Smith

Oct. 27 (Bloomberg) -- Crude oil fell for a second day in New York on concerns that OPEC's production cut may fail to arrest a slump in prices as the global financial crisis threatens to reduce energy demand.

The 13 members of the Organization of Petroleum Exporting Countries agreed Oct. 24 to lower supply by 1.5 million barrels a day starting in November. The group is likely to reduce production further if the latest cut doesn't stabilize prices, Agence France-Presse said, citing an interview Iran's OPEC representative Mohammad Ali Khatibi gave on state television.

``I expect prices are not likely to stop falling,'' said Go Endo, Tokyo-based commodity strategist at Fuji Futures Co. ``OPEC may not wait until the next meeting in December. They will probably hold an extraordinary meeting to cut production further.''

Crude oil for December delivery fell as much as $2.28, or 3.6 percent, to $61.87 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $62.15 at 8:05 a.m. in London. The contract earlier traded as high as $64.96.

On Oct. 24, the front-month contract fell $3.69, or 5.4 percent, to $64.15, the lowest close since May 31, 2007. Futures are down 33 percent from a year ago. The front-month contract dropped 11 percent last week, the fourth straight weekly decline.

Brent crude oil for December settlement fell as much as $2.35, or 3.8 percent, to $59.70 a barrel on London's ICE Futures Europe exchange. It traded at $59.79 at 8:07 a.m. local time. This is the lowest since March 20, 2007.

Declining Demand

Nippon Oil Co., Japan's largest refiner, will process less crude oil for a fifth consecutive month in November because of weaker domestic oil-products demand, the company said today. The refiner will process 15 percent less crude oil from a year earlier in November.

Global oil demand may decline for the first time in 15 years in 2008 and stagnate next year, the Centre for Global Energy Studies said Oct. 20. OPEC, the International Energy Agency and the U.S. Energy Department all cut their forecasts for growth earlier this month.

``There have been fairly dramatic adjustments to consumption,'' said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.

Prices have dropped 56 percent from the record $147.27 a barrel reached on July 11 as stock markets declined.

Eleven of 27 analysts surveyed last week by Bloomberg News, or 41 percent, tipped a decline in prices through Oct. 31. Eight respondents, or 30 percent, said oil will rise and eight forecast little change.

Oil options contracts to sell crude at $50 by December almost tripled on Oct. 24 after the OPEC decision to slash production failed to allay concerns that the global economic slump is hurting demand.

The MSCI World Index lost more than a quarter of its value this month as subprime-related credit losses topped $680 billion and global economic growth slowed. The S&P 500's 40 percent loss in 2008 would be the most since 1931 as the worst global financial crisis since the Great Depression deepens.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net; Yuji Okada in Singapore at yokada6@bloomberg.net