Oil Tumbles on Signs OPEC Cut Won't Halt Slide as Demand Drops

By Mark Shenk

Oct. 24 (Bloomberg) -- Crude oil tumbled to a 16-month low as OPEC's decision to slash production by 1.5 million barrels a day failed to ease concern that the global economic slump is curbing fuel demand.

``At this stage it looks like we are at the edge of a bottomless pit and prices are heading quickly toward $50,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``OPEC really needed to take the bull by the horns and make a bigger cut.''

The 13 members of the Organization of Petroleum Exporting Countries agreed to lower supply starting in November, oil ministers said today at a meeting in Vienna. Prices have dropped 57 percent from the record $147.27 a barrel reached on July 11 as stock markets declined.

Crude oil for December delivery fell $3.96, or 5.8 percent, to $63.88 a barrel at 9:20 a.m. on the New York Mercantile Exchange. Futures touched $62.85, the lowest since May 31, 2007. Prices are down 27 percent from a year ago.

Stocks tumbled around the world on concern the economic slump will crimp earnings. Treasuries rose as investors sought the safest assets, and the yen climbed to a 13-year high against the dollar.

``Every market participant is scared to death,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``Commodities are one of the riskiest asset classes, so of course, they are taking a big hit.''

`One Quick Decision'

OPEC's production cut was ``one quick decision,'' Saudi Arabian Oil Minister Ali al-Naimi said in an interview. The group's president and Algerian Oil Minister Chakib Khelil said at a news conference that the cut will be ``100 percent effective'' in stabilizing prices.

OPEC's reduction will be from the existing quota for 11 members of 28.8 million barrels a day. Saudi Arabia, the group's largest producer, will reduce its output target by 466,000 barrels a day. Iran, the second-biggest, will cut 199,000 barrels, OPEC said in a statement.

``The 1.5 million cut does suggest, at least somewhat, that OPEC understands it can't be behind the curve in a decreasing demand environment,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ``If they don't react firmly, any minimal chance to regain a position of strength will disappear for the foreseeable future, if not longer.''

Brent crude oil for December settlement declined $4.07, or 6.2 percent, to $61.85 a barrel on London's ICE Futures Europe exchange. Futures touched $61, the lowest since March 21, 2007.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.