- The Washington Times - Monday, March 16, 2009

Oil prices tumbled to around $44 a barrel on Monday after OPEC decided not to cut production levels at its meeting over the weekend in Vienna.

Benchmark crude for April delivery was down $1.59 to $44.66 a barrel by mid-afternoon in Europe on the New York Mercantile Exchange. Oil prices dropped 78 cents on Friday to settle at $46.25 a barrel. Earlier Monday, prices fell as low as $43.62 before a slight recovery.

Prices gained some support from news that militants had sabotaged an oil pipeline in southern Nigeria operated by Chevron Corp., slashing production by 11,500 barrels a day.

In London, Brent prices fell $1.92 to $43.01 on the ICE Futures exchange.

Members of the Organization of Petroleum Exporting Countries said Sunday they would strive to adhere more closely to the group’s current output quotas. OPEC is overshooting its daily target level of just under 25 million barrels a day by about 800,000 barrels.

Prices had risen from under $35 a barrel last month as investors anticipated OPEC would cut production by up to 1 million barrels a day on top of 4.2 million barrels of reductions announced since September.

“OPEC’s decision is widely interpreted as a measure to provide support to the global economy,” said JBC Energy in Vienna, as a new cut likely would have resulted in prices spiking considerably higher.

While some of the oil producers had voiced support for a further cut at Sunday’s meeting, others like OPEC’s de-facto leader Saudi Arabia argued instead for stricter compliance with the already-announced output reductions.

Still, with the global economy continuing to show falling demand, some analysts concluded that a new cut could still be in the books, maybe at OPEC’s special session on May 28 reviewing prices and supply.

“The existing … cuts deal with yesterday’s problem and further action is needed to deal with today’s even worse environment,” said KBC Market Services in Britain. “The odds must favor another production cut.”

Last week, both OPEC and the Paris-based International Energy Agency lowered their global oil demand forecasts for 2009.

On Monday, Saudi Arabia’s oil minister said that petroleum-producing countries needed a price of at least $60 a barrel to keep up investments in other fuel sources like ethanol, tar sands and heavy oil.

“If we want all hydrocarbon resources developed worldwide, 40 dollars is not enough,” Ali al-Naimi told reporters in Geneva, where he was attending an energy conference.

Oil prices rose recently in anticipation of a decision by OPEC to set a lower output target, but markets on Monday were in a corrective mood.

“The gains we’ve seen in oil over the last two or three weeks were from pricing in a further cutback, which didn’t come through,” said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. “So now we’re seeing some profit-taking.”

Also on Sunday, Russian Deputy Premier Igor Sechin said his country, the world’s second-largest producer after Saudi Arabia, would reduce crude sales. Analysts were skeptical Russia would follow through with production cuts given the country’s reliance on oil income.

“Russia tends to be more talk than action than OPEC,” Pervan said. “I think they’d be pretty hesitant to bring volumes down, but it’s worth watching.”

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” that America’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 quarter-century high of 8.1 percent.

“The market now doesn’t have that supply-side issue to support it,” Pervan said. “There’s more downside risk now that the focus is shifting from supply to demand issues.”

“All we need to see is one or two weak numbers out of the U.S., and we’re right back into the low $40s and high $30s.”

In other Nymex trading, gasoline for April delivery fell 2.03 cents to $1.3326 a gallon, while heating oil dropped 4.61 cents to $1.1511 a gallon. Natural gas for April delivery was down 13 cents to $3.802 per 1,000 cubic feet.


Associated Press writers Alex Kennedy in Singapore and Nathaniel Ibigor in Warri, Nigeria, contributed to this report.

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