NEW YORK -- Crude-oil prices continued for drop Friday even after OPEC 's production slash failed to allay concerns that the global economic slump is hurting demand. While OPEC 's decline in production is less than many analysts predicted, it has left many people uncertain of what will happen through the rest of the year and the beginning of 2009.
"This slowdown in oil demand is serving to exacerbate the situation in a market which has been over-supplied with crude for some time, an observation which [OPEC] has been making since earlier this year,” OPEC officials said. “Moreover, [image-nocss] forecasts indicate that the fall in demand will deepen, despite the approach of winter in the northern hemisphere.”
OPEC (the Organization of Petroleum Exporting Countries) on Friday said it was slashing 1.5 million barrels of oil a day in production as the world's financial crisis dampened demand for energy.
It also noted that "oil prices have witnessed a dramatic collapse—unprecedented in speed and magnitude—falling to levels which may put at jeopardy many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage."
The cartel said it was going to cut its production ceiling of 28.8 million barrels a day by 1.5 million barrels, effective Nov. 1. Analysts had been expecting a cut between 1 million and 1.5 million barrels a day, though a few observers said the cuts could reach as high as 2 million.
However, "the market isn't interested in supply issues with world demand the question," Darin Newsom, a senior analyst at DTN, told MarketWatch.
Oil options contracts to sell crude at $50 by December almost tripled Friday, according to Bloomberg News. The cost of the $50 December 2008 option, which gives the holder the right to sell oil futures at $50 a barrel, rose as much as 142% to $1.50 on the New York Mercantile Exchange, compared with 62 cents a day earlier, according to exchange data.
“It certainly seems to me that we could get down to $50 a barrel,” Adam Sieminski, Deutsche Bank's chief energy economist, told Bloomberg on Friday. “You could look at the OPEC cut as a sign of weakness, not strength.”
Crude oil futures for December delivery dropped as much as $5.19, or 7.7%, to $62.65 a barrel. The price of crude closed at $64.14 and has tumbled 56% since rising to a record $147.27 a barrel in New York on July 11.
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