OPEC considers drop in output

By Kevin Morrison and Javier Blas in London

FT.com

Published: September 25 2006 20:10 | Last updated: September 25 2006 20:10

Oil exporting countries may consider a cut in output after crude prices fell below $60 a barrel on Monday for the first time in six months.

The decline came as global demand fell back from its mid-year peak and tensions over Iran eased.

Ministers from the Organisation of the Petroleum Exporting Countries are understood to be concerned about the drop in oil prices, which are down almost a quarter from their recent peaks.

They have discussed the prospect of trimming production ahead of the oil cartel’s next ministerial meeting in Nigeria in December, according to Opec officials.

The oil price fall over the past month has been accompanied by investor selling in oil and other commodity markets, mainly on concerns that economic growth in the US is slowing.

“There is a concern by hedge funds that oil and commodities are no longer the one-way bet they once were,” said an Opec official.

Brent, the European benchmark oil price, dropped 50 cents to $59.91 a barrel, down 24 per cent from its record peak of $78.40 reached last month.

The US benchmark oil price, West Texas Intermediate, yesterday hit $59.62, its lowest level since early March, before recovering to $60.54. It was flat on the day.

The WTI is now lower than the level it ended at last year. The magnitude of the decline in percentage terms is the largest in more than three years.

Investors have been selling out of oil futures over the past month, after taking bets earlier in the year on expectations of hurricanes disrupting oil supplies in the Gulf of Mexico.

But with the Atlantic hurricane season finishing at the end of September, there is little prospect of a repeat of last year’s devastating storms.

Opec is not only worried about investor activity in oil markets, but also about preserving high export prices, which underpin government budgets in member countries.

Many Opec producers have embarked on big spending programmes in recent years on the back of the higher oil price.

Opec maintained its quota of 28m barrels a day at its recent meeting in Vienna, and this is close to the cartel’s actual production last month.

Saudi Arabia, Opec’s linchpin member and the world’s largest oil exporter, has been cutting its output since the end of last year.

If Opec does trim its official production ceiling, it would be the first cut since December 2004, when oil prices were close to $42 a barrel.

Copyright The Financial Times Limited 2006