Brent crude falls below $100 a barrel
The cost of a barrel of Brent crude oil slipped back below 100 US dollars in volatile trading today. as slowing demand offset news of a cut in excess production.
The price of October Brent crude dropped 1.41 US dollars to 98.93 US dollars a barrel, despite oil cartel Opec’s decision to cut supply.
Signs of a slowing economy in the US – expected to hit demand for oil – brought an end to earlier rises with light, sweet crude also declining to 102.15 US dollars a barrel on the New York Mercantile Exchange.
The International Energy Agency (IAE) lowered its global oil demand forecast for both this year and 2009 to reflect slower economic growth.
Oil had moved higher after Opec, which concluded a meeting in Vienna early today, said it would produce 28.8 million barrels a day, consistent with levels agreed in September last year.
The outcome effectively meant member countries had agreed to cut back 520,000 barrels a day of excess production. Countries regularly produce oil above the organisation’s overall quota to maximise revenues.
The deal is seen as a compromise to avoid new turmoil in crude markets while seeking to prevent oil prices from falling too far.
Meanwhile the US Energy Department’s Energy Information Administration also reported a drop in inventories today, but the forecasts of slower demand overshadowed its figures.
The New York price has dropped nearly 30% from the 147 US dollar high seen in July as projections of slower global economic growth dampened demand.
There were fears Opec could cut production quotas to shore up prices.
In its statement, Opec said the oil market was “well supplied” and that had enabled inventories “to be built up to comfortable levels in terms of forward demand cover”.
The 13-nation organisation – whose members include Saudi Arabia, Iran, Venezuela and Nigeria – wants to avoid oil prices falling rapidly as that would cause headaches for oil industry investment. Oil costs as much as 50 US dollars a barrel to produce.
Energy analyst John Hall, of John Hall Associates, said: “By allowing the price of oil to rise too quickly to unrealistic levels during this year already, Opec has jeopardised price stability and will now have to be very careful to balance supply and demand and try to keep price levels acceptable to both producers and consumers.”
Mr Hall added: “There’s a general feeling that it’s Opec’s fault that oil prices are so high. It would have been a bad step to reduce output in the current climate.”
Petrol prices on UK forecourts have not fallen as quickly as oil prices, with average unleaded petrol down from July’s peak of 119.7p to 112.7p at the weekend - a drop of nearly 6%. Average diesel prices have fallen from 133.3p to 124.1p, just under 7%.
The AA said it takes around four to six weeks for oil price changes to filter through to forecourt pumps.
Opec nations have around two-thirds of the world’s known oil reserves, and account for 40% of the world’s oil production.
