Oil prices sink to lowest level in 2006
Fall comes as traders express skepticism OPEC members will hold to planned production cuts.
NEW YORK (CNNMoney.com) -- Oil prices sank to their lowest level in 10 months Friday even though OPEC agreed to curb output more than expected and some members said the cartel could even cut production again before the end of the year.
Crude settled $1.68 lower at $56.82 a barrel, the lowest this year after trading as low as $56.55 in intraday activity
Ministers agreed Thursday to cut output by 1.2 million barrels per day from Nov. 1, 200,000 bpd more than had been anticipated.
Oil briefly surged above $59 in early trading Friday, but then oil started falling as traders bet that some OPEC members may fail to comply with the curbs.
"The 1.2 million cut, relative to a million expectation, got people excited," said Andrew Lebow, a broker at Man Financial. "Now the market is reassessing looking at the numbers and trying to determine if the production cuts will be effective. I think there's always some skepticism about OPEC and whether or not we'll see these production cuts."
OPEC, which supplies about a third of the world's crude, said in a statement after an emergency meeting in Doha that oversupply had destabilized the oil market.
The cut was its deepest since January 2002 and is equal to about 4.3 percent of September supply.
"It was a surprise. It shows the determination of OPEC," Tetsu Emori, chief strategist at Mitsui Bussan Futures Ltd. in Tokyo, told Reuters. "They obviously wanted to send a message to the market."
Some ministers said a further cut of 500,000 bpd could follow when OPEC next meets in Nigeria in December.
They said they were concerned about high fuel stocks in consumer countries, particularly in the United States, and a projected drop in demand for OPEC oil in 2007 as competitors bring more supplies online.
Saudi oil minister backs 1M barrel production cut
"This is not the end of the road because we have another meeting coming up," Saudi Arabia's Oil Minister Ali Al-Naimi told Reuters.
Naimi gave the full support of the world's largest exporter to the cut and said that Saudi Arabia had already notified customers of lower supply.
Saudi Arabia will shoulder around 32 percent of the cut, amounting to 380,000 bpd.
Ministers' failure to speak with one voice before the hastily-arranged talks had deepened oil's losses of around 25 percent from a mid-July peak of $78.40 a barrel.
To sidestep the issue of quotas and market share that analysts said had begun to cost the cartel credibility, OPEC published only a list of individual cutbacks but left formal quotas unchanged.
Analysts said OPEC's next task was to prove to the market it really was curbing supplies.
"There's still a degree of skepticism over whether they will deliver all the cuts," said Tobin Gorey, commodity strategist at Commonwealth Bank of Australia. "For all the extra barrels the market's put on about 50 cents - not much."
OPEC's cut also reinforced signals that it would defend a price of about $60 a barrel, high enough to justify its investment in future production capacity but low enough to allow economic growth and deter a flood of alternative fuels.
"The drop in prices that has already occurred has had a remarkably positive influence on consumer attitudes and spending in the U.S.," said Adam Sieminksi of Deutsche Bank.
"The shopping season is coming up and it's going to be a lot better with oil at $60 than at $80."
Algerian Energy and Mines Minister Chakib Khelil said a $50-$60 a barrel range for OPEC's basket of crudes - about $55-$65 a barrel for U.S. futures - would be acceptable.
The producer curbs will begin to bite just as the Northern Hemisphere heads into winter, when oil demand surges. Private weather forecaster AccuWeather said this week that the U.S. East Coast should be chillier than normal this year.
Reuters contributed to this report
OPEC agrees to production cut