Oil Prices Fall Despite Record OPEC Cut

Recession Fears Override Promised 2.2 Million Barrel Production Cut; Crude Hits 4 ½ Year Low

(CBS/AP)  Oil prices fell to 4 1/2-year lows Thursday in Asia as investor pessimism over global crude demand outweighed OPEC's largest-ever production cut.

Light, sweet crude for January delivery was down 6 cents to $40.00 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. At one point, it fell as low as $39.19 - a level not seen since at least July 2004.

Overnight, the contract fell $3.54 to settle at $40.06 a barrel, after touching $39.88.

The 13-nation Organization of Petroleum Exporting Countries, which accounts for about 40 of global oil supply, said Wednesday it planned to reduce its output quotas by 2.2 million barrels a day.

But markets had already expected a vastly reduced flow of oil and traders focused instead on troubling economic data that points to a long and severe global economic slump.

"The market apparently had already priced in this cut," said Peter McGuire, managing director at investment firm Commodity Warrants Australia in Sydney. "I think OPEC will have to have another meeting in January, and I wouldn't be surprised to see possibly a 3 million cut next time."

Even before Wednesday's OPEC cut, there were questions as to whether such a move would have the desired effect.

"The reason why prices are falling is because demand is falling. Raising prices isn't going to change that fact of life," energy analyst Phil Flynn of Allergon Trading, told CBS News Radio.

Flynn also questioned the timing of the move.

"OPEC is cutting production in a slowing global economy and they are really out of step with the rest of the globe, which is really trying to inspire economic growth," he said.

Peter Beutel of Cameron Hanover said that prices would likely rise in the short term, but agrees that OPEC's strategy is risky.

"Cutting oil supply is a mistake by OPEC because what it does is it drives the price artificially higher and that in turn is going to exacerbate, prolong, worsen the recession," he told CBS News correspondent Elizabeth Palmer.

OPEC's next official meeting is scheduled for March. The group had already announced cuts totaling 2 million barrels earlier this year, also with little effect. The unprecedented production cuts and the market reaction show just how fast energy demand has fallen during the worst economic downturn in at least a generation.

Oil prices have tumbled 73 percent since July. What started as a crisis in the U.S. sub-prime mortgage sector last year has mushroomed into a recession in most developed countries and a sharp downturn in emerging nations.

Companies across the world are laying off workers and banks are reluctant to lend. Plunging property values and high debt levels have led many consumers to pull back spending.

"I'm worried about growth," McGuire said. "You have to get people spending."

Oil prices may fall as low as $35 a barrel during the next few weeks, he said.

U.S. crude inventories rose slightly last week and gasoline reserves increased as demand stayed below year-ago levels, according to government data released Wednesday.

Analysts had expected crude stocks to fall 900,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

In other Nymex trading, gasoline futures were steady at $1.00 a gallon. Heating oil was steady $1.44 a gallon while natural gas for January delivery fell 2.4 cents to $5.60 per 1,000 cubic feet.

In London, February Brent crude rose 2 cents to $45.55 a barrel on the ICE Futures exchange.

[ezmechanix]

it''s strange how tax payer''s are paying back,what the oil company,s earned from the good USA people!

[babooph]

Oil at 1$ a barrel will not help the old US middle class if they do not have the dollar.

[mrmeatspin]

On 1/15/08 The Bush administration announced plans to sell Saudi Arabia around $120 million in sophisticated bombs. Sophisticated Joint Direct Attack Munitions %u2014 or "smart bomb" %u2014 technology and related equipment, The sale came as part of the White House%u2019s $20 billion military aid package to its Gulf allies.

The next day President Bush reminded the Saudi%u2019s of how high oil prices were hurting the US economy. I guess their lack of response to the situation was their way of saying thank you for us helping them with their national security.




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Posted by Fiberglass3 at 08:17 AM : Dec 19, 2008
+ report abuse


*******

AND THE DAY AFTER THAT..you were b1tching you dont have gas to put in your 9mpg escalade to drive to the ''no war for oil'' protest..

*its amazing how these people DO NOT SEE thier own involvment IN THIER EQUATION OF DEATH*

[fiberglass3]

On 1/15/08 The Bush administration announced plans to sell Saudi Arabia around $120 million in sophisticated bombs. Sophisticated Joint Direct Attack Munitions %u2014 or "smart bomb" %u2014 technology and related equipment, The sale came as part of the White House%u2019s $20 billion military aid package to its Gulf allies.

The next day President Bush reminded the Saudi%u2019s of how high oil prices were hurting the US economy. I guess their lack of response to the situation was their way of saying thank you for us helping them with their national security.

[au_fait]

We said $165 a bbl had nothing to do with supply and demand and everything to do with Bear Stearns among others using the unregulated ICE markets and speculation to recoup their subprime losses. It appears we were right!!!

Posted by paidGOPshill

You say this but offer no facts. Global recession equals less demand. As demand decreases the forecast lowers more. that is what is occuring. So yes the cost goes down. Yes costs are a combination of speculation, but the end driver is supply and demand. If you are going to state it is only speculation that causes the costs increase then hell speculation should be keeping the costs high.

[ajmarine111]

lets not forget that 15 of the 9/11 terrorist came from bandar bush favorite oil kingdom and I bet if we ever get attacked again it will be from them. they have never cared about helping us at all.


Posted by usadvisor101 at 12:55 PM : Dec 18, 2008



OBL choose the 15 from Saudia Arabia to drive a wedge between us and them.

[omega40]

The U.S. economy is in recession, and federal policymakers want to help by applying some old-fashioned Keynesian medicine. They are considering a "stimulus" bill of up to $700 billion, with substantial spending going to state and local governments for infrastructure, Medicaid, and other activities. In the latest Tax & Budget Bulletin, Cato scholar Chris Edwards, gives 10 reasons that such subsidies for the states would be ill-advised.

Deficits be damned is right! 80 billion over 10 years doesn''''t sound so bad to me, when this country has poured over 44 TRILLION into the War on Poverty that hasn''''t even started to be WAGED YET!


Posted by RowdynTex

1) LBJs war on poverty started in what 1966? That is 42 years in which Democrats held the presidency for 14 of those years. If you want to point fingers point them at the party that held it for twice that long. Oh, and you can thank Reagan for EIC and Bush for the Medicare expansion.

2) Are you comparing Keynesian economic theory and its suggestion that A government must spend during recessionary periods with "pork" spending in good economic times?

[paidgopshill]

Wasn''''t it the libs who last summer said the price of oil had nothing to do with suppply and demand.

Posted by mccain08nc

We said $165 a bbl had nothing to do with supply and demand and everything to do with Bear Stearns among others using the unregulated ICE markets and speculation to recoup their subprime losses. It appears we were right!!!

[drinuk]

Agreed, lets all really cut back, lower our use and see the producers and the cartels, not to mention the crooked oil dealers, on their *****.

Hit ''em so hard they wont be able to afford a bloody camel. Lets see the tears in the eyes of Chavez when his little dictatorship falls apart.

Oh! Happy Days, Use less, Use less, Shaft ''em

[jtdev1]

Hey, you notice the chart above???

It looks like my 401K chart....

[jamster31]

I hope OPEC has to eat that oil for ripping the world off all this time. All they have is oil and sand. they''ll runn out one day and we''ll have to find an alternative, but we''ll remember how they held the world hostage.

[omega40]

NONE! They paid attention to the budget and didn''''''''t glomb on BILLIONS in spending to every bill they proposed!

Unlike your democraps that he had to veto 12 times because they kept attaching TRASH to every bill the put up for signature!

Posted by RowdynTex

Oh yeah? Here''s what CATO had to say about the Republican sponsored energy bill in 2003..

Here are the highlights. The proposed legislation will cost about $80 billion over 10 years and deficits be damned. Government-funded research and development and other subsidies make up about $60 billion of that total. Turning the corporate tax code into a better approximation of Swiss cheese with a new flood of incredibly prescriptive tax credits for every energy firm with a lobbyist will cost the Treasury $16 billion. Higher prices imposed by a doubling of federal ethanol subsidies will cost motorists about $7 billion.

[takebackusa]

it is about as patethic as seeing a big ESCALADEswith a ''''no war for oil'''' bumper sticker with a fat liberal wearing a prada shirt and talking on his Iphone to his friend about the evils of capitalism

Posted by Impeach_O at 11:09 AM : Dec 18, 2008

Even more amazing - the hummers with McCain/Palin bumper stickers.

[impeach_o]

its amazing how these left winged nut liberals talk about oil LIKE THEY DONT USE OIL..

it is about as patethic as seeing a big ESCALADEswith a ''no war for oil'' bumper sticker with a fat liberal wearing a prada shirt and talking on his Iphone to his friend about the evils of capitalism

[tangouniforn]

I would like to point out that while the democrats, starting after 2006, do have a majority in both the House and Senate. I will also point out that that in the senate the republicans, with more than 40 members can and have stopped any legistation with they disapprove. And if the president vetos any legistation it takes a 2/3 majority in both the House and Senate to override. I too have a low opinion of congress, but it is not because the democrats have not passed legistation but much of what was passed was blocked by republicans or vetoed by the president and an override blocked by the republicans in either the house or the senate.

[takebackusa]

Ford555 - don''t pick on Rowdy. Her rantings are the entertainment here at my office. By the way, we''re not laughing WITH her.

[ford555551]

RowdynTex,
You must be one those crooks and morons like Bush from Texas with 3rd grade education. Stupid and illiterate people like you are the bigger problems in this country than financial crisis. Go back to school and get a GED, though it won%u2019t change your IQ but may improve little more than Bush%u2019s IQ, which is 86 (little better than mentally retarded person)

[takebackusa]

NONE! They paid attention to the budget and didn''''t glomb on BILLIONS in spending to every bill they proposed!

Posted by RowdynTex at 10:54 AM : Dec 18, 2008

Ah yes, like that necessary Alaskan "bridge to nowhere"

[closethippy1]

Interesting to see how the American right wing has become like a bunch of salespeople who don''t care how defective the product they''re selling is, all that matters to them is to make their commission.
Of course they''re not making any commissions nor are they making any money out of it but people like Sen. Joe McCarthy, Rush Limbaugh, Newt Gingrich, FOX News, etc. have convinced entire generations of Americans that somehow their lives depend on selling rightwing propaganda even if the country has been brought to the brink of economic and military disaster because of their ideology.
These rightwing whackos are so brainwashed all they''re doing is reacting like hungry dogs and not thinking about what they''re saying.
I''m glad that Obama''s election as President of the US signals the beginning of the end for these rightwing fanatics.
Like the Nazis and the KKK they''ll be making noises from the margin of society but hardly anyone will pay attention to them anymore.

[renonv5]

You people need to go to a private chat room, the rest of us do not want to read your childish rantings.
It sounds as if you never went beyond a 7th grade mentality.