Oil Falls Before OPEC Discusses Output Cut to Stem Price Slump

By Reg Curren

Nov. 28 (Bloomberg) -- Crude oil fell in New York trading amid speculation a potential production cut by OPEC to support prices may be trumped by concerns over declining demand amid a worsening U.S. recession.

OPEC members may consider a reduction at their meeting this weekend in Cairo to stabilize the market, Shokri Ghanem, chairman of Libya’s National Oil Corp., said yesterday. Crude oil futures traded in New York have slumped 63 percent since reaching a record $147.27 a barrel on July 11.

“People are waiting to see if there any cuts coming out of this meeting,” said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. “Though at this point it’s really about economic numbers. OPEC doesn’t really have control over pricing right now.”

Crude oil for January delivery fell 65 cents, or 1.2 percent, to $53.79 a barrel at 8:10 a.m. Singapore time in electronic trading on the New York Mercantile Exchange. Nymex was open for electronic trading only yesterday because of the U.S. Thanksgiving holiday. Futures closed at $54.44 on Nov. 26 after rising 7.2 percent.

Brent crude oil for January settlement yesterday fell 79 cents, or 1.5 percent, to settle at $53.13 a barrel on London’s ICE Futures Europe exchange.

Next Week

Fourteen of 38 analysts surveyed by Bloomberg News, or 36 percent, said oil prices will decline through Dec. 5. Twelve respondents, or 32 percent, said oil will rise and 12 forecast oil will be little changed.

“We doubt OPEC can materially alter either market fundamentals or sentiment near-term,” Merrill Lynch & Co. oil analyst Alastair Syme said in a Nov. 26 report. “In a rapidly falling demand environment we see little that suppliers can do to either reverse sentiment or tighten market fundamentals.”

Ministers from the Organization of Petroleum Exporting Countries, which supply 40 percent of the world’s oil, are meeting tomorrow for the third time in as many months to discuss a further cut in production after crude prices plunged.

OPEC last month agreed to reduce production by 1.5 million barrels a day.

The crude oil market is over-supplied, OPEC Secretary- General Abdalla el-Badri said yesterday in an interview in Cairo. He declined to recommend a course of action, saying any decision concerning production quotas was up to ministers to take.

Global Stockpiles

Global oil stockpiles stand at about 56 days of supply, higher than the five-year average, El-Badri said. That’s more than the 52-days level that OPEC would expect at this time of year, he said.

Economic reports earlier this week in the U.S. showed a deepening recession that may cut fuel demand in the world’s largest oil user.

Consumer spending slumped the most in seven years and orders for durable goods including refrigerators and washing machines declined twice as much as forecast, the Commerce Department said Nov. 26. Gasoline demand dropped 1.3 percent from last week, the Energy Department said in its weekly report.

U.S. crude-oil supplies rose 7.28 million barrels to 320.8 million barrels last week, the Energy Department said. It was the ninth straight increase, the longest stretch since April 2005.

Gasoline inventories grew by 1.84 million barrels, or 0.9 percent, to 200.5 million barrels, the department said. A 500,000-barrel gain was forecast, according to a Bloomberg survey.

To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.