Sam Fletcher
Senior Writer
HOUSTON, Oct. 24 -- Energy prices fell a second consecutive day after the Organization of Petroleum Exporting Countries announced a 1.2 million b/d production cut to shore up a $20 drop in crude futures prices from a peak above $78/bbl in mid-July.
Following OPEC's Oct. 20 decision to reduce production to 26.3 million b/d effective Nov. 1, Saudi Arabia immediately notified customers it would cut output by 380,000 b/d. But traders and market analysts remain skeptical about further reductions by other OPEC members
"Venezuela and Iran have both consistently claimed much higher production levels [than their actual output], raising doubts that they will make any real cuts," said analysts at the Centre for Global Energy Studies, London. "It is also questionable whether prices are low enough to persuade OPEC's African members to cut production while demand for their light, sweet crudes remains robust," they said.
The latest OPEC agreement lacks "explicit starting points for individual output cuts" necessary for "real credibility," said CGES analysts. "The quota system—at least in its present form—is dead. Quotas were a useful system to adopt when OPEC was attempting to manage the market during a period of high excess production capacity, but they have little relevance at a time when most member-countries are producing at or close to capacity," they said.
Meanwhile, Iraq, which has not been subject to OPEC production quotas since the allied war to oust Saddam Hussein, said its crude production recently reached 2.86 million b/d, surpassing prewar levels. Skeptical analysts put Iraq's current production at 2 million b/d, however. As for Iraq's ambitious plan to increase production to 4.5 million b/d by 2010, "All we can say is—good luck." said analysts in the Houston office of Raymond James & Associates Inc.
Energy prices
The new December front-month contract for benchmark US sweet light crudes lost 52¢ to $58.81/bbl Oct. 23 on the New York Mercantile Exchange. The January contract declined 43¢ to $60.48/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased 19¢ to $57.02/bbl. Heating oil for November delivery slipped by 1.1¢ to $1.67/gal. Unleaded gasoline for the same month inched up by 0.43¢ but closed relatively unchanged at $1.47/gal. The November natural gas contract dropped 36¢ to $6.88/MMbtu.
In London, the December IPE contract for North Sea Brent crude was down by 47¢ to $59.21/bbl. The November gas oil contract lost $7.50 to $526.25/tonne.
With the OPEC Secretariat closed for holidays Oct. 23-24, no price update was available for the group's basket of 11 benchmark crudes. The secretariat also is scheduled to be closed Oct. 26.
Contact Sam Fletcher at [email protected].
