Oil falls toward $58, OPEC to meet Thurs on cuts
Reuters| October 16, 2006
By Simon Webb
LONDON - Oil dropped toward $58 a barrel on Monday as a Norwegian oilfield restarted after a brief outage and OPEC prepared for an emergency meeting to finalize a cut in output.
U.S. light crude for November delivery <CLc1> fell 30 cents a barrel to $58.27 by 1200 GMT. Brent crude <LCOc1> fell 59 cents to $58.93.
Norwegian authorities said Royal Dutch Shell <RDSa.L> could restart its 80,000 barrels per day (bpd) Draugen oilfield earlier than expected on Monday.
Prices had rallied on Friday as Shell and Statoil <STL.OL> said they would shut down 280,000 barrels of oil equivalent per day output for a week or two to improve lifeboat safety as demanded by regulators.
Authorities have yet to grant Statoil permission to restart its larger field.
Ministers from the Organization of Petroleum Exporting Countries are due to meet on Thursday in Qatar to put an end to over two weeks of wrangling on how to cut a million bpd from the group's supply.
OPEC, which supplies a third of the world's oil, has faltered on whether to make the cut from its official output target of 28 million bpd or from actual production of around 27.5 million bpd.
The group's dithering has blunted the potential effect of the cut on prices. Oil has shed a quarter of its value since peaking at $78.40 a barrel in mid-July as inventories swell and supply concerns wane.
"The market will move on OPEC announcements now that the meeting has been agreed for Thursday," said Frederic Lasserre from SG CIB Commodities. "A clear, concise agreement on a cut might be bullish in the short-term."
Most members have been pumping at or above their individual OPEC quotas to meet global demand growth.
But Indonesia and Venezuela have fallen well below theirs and Iran has had difficulty matching its limit, making them reluctant to cede market share to their peers by cutting from actual output.
The disagreement has hurt OPEC's credibility with investors, said Lasserre.
"We think that OPEC has effectively failed this test," he said. "They may have to make another cut in December, partly to reassure the market that its statements on cuts are credible and that the group will defend a certain floor in prices."
OPEC cut its forecast for demand for its crude in the last three months of 2006 in its October report on Monday and said that price weakness may persist.
The group said demand for its crude in the fourth quarter would average 170,000 bpd less than it forecast in its last monthly report.
"Uncertainties about global economic prospects particularly in the USA, slowing demand growth, rebounding non-OPEC supply and high stock levels have triggered a strong bearish sentiment in the market," the report said.
Iran, the world's number-four exporter, could move back onto the market's radar screen this week as the European Union's 25 foreign ministers appear set to agree at a meeting on Tuesday to ask the U.N. Security Council to impose sanctions.
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