LONDON, 3 December 2004 — World oil prices plummeted to the lowest levels for three months yesterday, shedding almost $3 in New York, as fears of an evaporating supply crunch sent investors packing, analysts said.
Prices were hit also by signs that the Organization of Petroleum Exporting Countries (OPEC) would refrain from announcing output cuts next week. New York’s benchmark light sweet crude for delivery in January tumbled $2.64 to $42.85 a barrel at around 1730 GMT, having already plunged more than $3 the previous day.
It fell as low as $42.50 earlier yesterday, the first time it had fallen below $43 since Sept. 8.
In London, Brent North Sea crude for January lost $2.66 to $39.65, after plummeting by $3.20 on Wednesday. It slumped to as low as $39.50 yesterday, the first drop below $40 since Sept. 1. Prices have slid more than $6, or almost 14 percent, in just two days.
The sharp falls were triggered by a US government report showing rises in inventories of crude oil, gasoline and distillates, including heating oil stocks, which are the main focus of the market as the northern winter sets in. shortages Prices were also coming under pressure from comments from OPEC members suggesting that the organization was likely to postpone a cut to output quotas until next year.
OPEC ministers are due to meet in Cairo on Dec. 10 to discuss whether to rein in production that has been boosted substantially in recent months to try to bring down record high oil prices above $50 a barrel. But the grouping’s output ceiling was likely to be left unchanged at next week’s meeting, said OPEC President Purnomo Yusgiantoro.
“There’s this thought that during the first quarter (of 2005), prices will remain high because of geo-political problems and because our oversupply has come down to 1.0-1.5 million barrels (per day),” Yusgiantoro, who is also Indonesia’s energy minister, told reporters in Jakarta. OPEC’s current production ceiling is set at 27 million barrels per day.
Saudi Arabia’s plan to increase oil output 14 percent over next few years to more than 13 million barrels a day should lower prices significantly, said Prince Alwaleed ibn Talal, chairman of Kingdom Holding Co.
“There’s no doubt there’s an element of fear involved in the high price right now,” he said in an interview on CNBC Wednesday. “Once those fears have been eliminated, the price of oil will stabilize to a reasonable price in the mid-30s.”
OPEC acting secretary-general Maizar Rahman said at a forum in Manila yesterday: “Cutting the production has little chance. The most we can do is to stay at the (current) quota.” Against that backdrop, Rahman said a cut in production would be “psychologically negative” for the market, adding that OPEC did “not want to give the market bad news.”