Oil prices drop as production cuts are expected

Source: Agencies  |   2008-12-16  |     ONLINE EDITION

CRUDE oil futures sank yesterday ahead of an OPEC meeting where huge production cuts are expected.

Light, sweet crude for January on the New York Mercantile Exchange peaked briefly above US$50 a barrel early yesterday, but then fell US$1.77 to settle at US$44.51 with more dour economic news from both Asia and the United States.

Investors were looking at more signals of deteriorating demand, rather than at any OPEC action to cut supply, said Phil Flynn, an analyst at Alaron Trading Corp in Chicago.

"They really can't surprise the market," he said of OPEC. "When we trade commodities, we have the tendency to buy the rumor and sell the fact, and of course right now we've done a pretty good job in pricing in the OPEC rumors."

On yesterday, Toyota said it would indefinitely delay a new assembly plant in Mississippi due to auto industry downturn.

Growth in China's factory output fell to its lowest level in nearly seven years as trade plunged.

In London, January Brent crude fell US$1.81 to settle at US$44.60.

The Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, has signaled it plans to announce a substantial reduction of output quotas at its meeting Wednesday in Algeria.

But in a hint of what could come out of the ministers' gathering, OPEC President Chakib Khelil evoked OPEC's last Algeria meeting four years ago, where "we reduced by 2 million barrels."

"It was a historic conference, and it enabled us to meet the challenge of falling markets," he told reporters.

Kuwaiti oil minister Mohammed al-Eleim said yesterday that OPEC was "undoubtedly inclined" to cut production. But he added that any decision would balance the need for a cut with its impact on the ailing world economy and producer nations' need for revenue to fund development projects.

Analysts have questioned whether OPEC members will follow through with any announced cut.