Oil prices slump to fresh four-year lows
2008-12-18

Category OPEC Petroleum Nations Algeria Category Regions Regions Europe Africa Event 2008 Global Oil Crisis Source (AFP)

NEW YORK (AFP) - Oil futures tumbled Thursday to the lowest points for more than four years, as markets reacted with skepticism to an OPEC decision on a record output cut to lift sagging prices.

On the New York Mercantile Exchange (NYMEX), light sweet crude for delivery in January dived 3.84 dollars to close at 36.22 dollars a barrel, the weakest since July 2004.

At one point the price fell as low as 35.98 dollars, which was the lowest since June 30, 2004.

On London's InterContinental Exchange (ICE), Brent North Sea crude for February slumped 2.17 dollars to settle at 43.36 dollars a barrel.

The relentless slide in prices from record highs of 147 dollars a barrel earlier this year is now seen as a sign of the deep troubles of the global economy, which will mean weaker energy demand.

The fall came even after ministers of the OPEC 13-member cartel, meeting in Oran, Algeria, agreed to the reduction in a bid to shore up prices.

The Organization of the Petroleum Exporting Countries (OPEC), which produces about 40 percent of the world's crude, approved a record output cut on Wednesday of 2.2 million barrels a day.

It was the third time in three months that OPEC has lowered production, and the largest reduction since the cartel introduced production quotas in 1982.

Before the latest cuts, OPEC's official daily output target was 27.3 million barrels a day.

However, the decision failed to prevent prices plunging even further, as rising US energy reserves also heightened global demand worries amid a sharp worldwide economic slowdown.

"The verdict (of falling prices) was a resounding vote of no-confidence in the cartel's ability to curtail production given its previous tendencies to backslide on commitments, particularly by countries who are financially strapped," said MF Global oil analyst Ed Meir.

Despite the output reduction on Wednesday, New York crude dropped a hefty 3.54 dollars and London Brent oil shed 1.12 dollars.

"Should we be surprised at the market action? Absolutely not," said Phil Flynn at Alaron Trading.

"The market, after an initial blip up, sold off every time trying to tell OPEC that a decrease in production would ultimately hurt demand, prolong the economic slump and send prices lower longer. Yet the OPEC cartel failed to heed the market's warnings."

Another factor was a rise in US inventories.

The US Department of Energy reported on Wednesday that American crude oil stockpiles climbed by 500,000 barrels in the week ending December 12, which was five times market expectations and indicated weaker US energy demand.