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OPEC disunity helps push down oil price

By ASSOCIATED PRESS
Published October 12, 2006

WASHINGTON - Oil prices fell to their lowest level this year on Wednesday as doubts grew that there is a consensus within OPEC for an immediate output cut.

Since July, the cost of crude oil has plunged by more than $20 amid rising global inventories, concerns about slowing economic growth and a milder-than-anticipated hurricane season.

Against this backdrop, the president of the Organization of Petroleum Exporting Countries, Nigerian Oil Minister Edmund Daukoru, said there is a need - and an agreement - to cut production by 1-million barrels a day starting next month.

But Saudi Arabia, the country whose participation is necessary to make any significant output reduction, has not publicly confirmed this.

"The market just doesn't believe" a supply cut is imminent, said Societe Generale's director of commodity strategy Michael Guido.

Instead, OPEC members appear to be divided over what is an appropriate price level for the cartel to try and defend by reducing its output, analysts said.

Price hawks within OPEC, such as Venezuela and Nigeria, have made it very clear over the past week - through a barrage of public comments - that they are quite satisfied with world oil prices hovering around $60 a barrel.

Saudi Arabia, on the other hand, has made it known - by remaining mostly silent - that it is not interested in attempting to prop up prices just yet.

Analysts said the discrepancy among OPEC members about what constitutes a fair price for oil also relates to each country's dependence on oil revenues to finance their domestic budgets.

"One of the problems with high oil prices is that they have made some countries believe they're entitled to that level," said Lawrence Goldstein, president of the Petroleum Industry Research Foundation, a New York-based industry-financed think tank.

"By the way, $60 oil is still not cheap oil," Goldstein said.

Light sweet crude for November delivery fell by 93 cents to settle at $57.59 a barrel on the New York Mercantile Exchange - the lowest settlement since Dec. 19.

The last time OPEC trimmed its output - by 1-million barrels a day - was December 2004 when oil traded slightly above $40 a barrel. That caused an immediate spike in prices.

Meanwhile on Wall Street, stocks pulled back Wednesday after aluminum producer Alcoa Inc. kicked off earnings season with a weaker-than-expected profit report and minutes from the Federal Reserve's last meeting stoked concerns about the economy.

The Fed minutes dashed hopes, however slim, that the central bank would soon consider lowering interest rates and raised questions about the well-being of the economy.

The Dow Jones industrial average fell 15.04, or 0.13 percent, to 11,852.13. Broader stock indicators also moved lower.

The Standard & Poor's 500 index was down 3.47, or 0.26 percent, to 1,349.95, and the Nasdaq composite index was down 7.16, or 0.31 percent, at 2,308.27.

[Last modified October 11, 2006, 23:39:37]