Opec’s biggest output cut fails to aid oil prices

SINGAPORE: Opec’s biggest production cut ever failed to aid oil prices yesterday, with US crude hitting a 4½-year low under US$40 as traders doubted the cartel’s ability to curb output fast enough to match collapsing demand.

At US$40 a barrel, oil is more than US$107 off its July peak, having shed almost three-quarters of its value as the onset of a global recession cuts into fuel demand. Top forecasters are now predicting the first decline in world energy use since 1983, and a rise in weekly US crude oil stocks added to the gloom.

“At US$147 they produced everything they could but that did nothing to lower prices. At US$40, they also can do nothing to stem the price fall,” said Tetsu Emori, who runs a commodities fund at Astmax Co Ltd in Japan. “Their policy is not really working.”

The Organisation of the Petroleum Exporting Countries agreed on Wednesday to its third production cut since September in an increasingly urgent bid to support prices, bringing its total reduction to over four million barrels per day or 5% of world supply.

JPMorgan cut its 2009 crude oil forecast to US$43 a barrel from a previous US$69 a barrel expectation following Opec’s cut, and many analysts say more losses could be in store until more supply is taken off the market or demand starts to level off. – Reuters