OPEC cuts production, oil hits 17-month low

Crude ends day at $64.15 after cartel cuts production by 1.5 million barrels a day.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By David Goldman and Kenneth Musante, CNNMoney.com staff writers

Now that gas prices are lower, how much are you driving?
  • Still driving less
  • Driving the same amount as always
  • Driving more

NEW YORK (CNNMoney.com) -- Oil prices fell Friday to their lowest point since May 2007 as investors were unimpressed by a decision from the world's largest oil cartel to slash production targets.

The Organization of Petroleum Exporting Countries, whose member nations control about 40% of the world's oil, said it would cut production by 1.5 million barrels a day starting in November in order to keep oil prices from falling further. But many investors had been looking for something much larger.

U.S. crude for December delivery settled down $3.69 to $64.15 a barrel in New York. It was the lowest close for oil in more than 17 months. Prices hit an intraday low of $62.65 after news of the cut.

"(OPEC) had a chance here to either help the world economy, or help themselves, and they did neither," said Peter Beutel, oil analyst with Cameron Hanover.

OPEC cut: OPEC said the cut was necessary because the global financial crisis has caused oil demand and prices to plummet.

"The financial crisis is ... dampening the demand for energy, in general, and oil in particular," said OPEC in a statement released after the meeting concluded. "Oil prices have witnessed a dramatic collapse - unprecedented in speed and magnitude."

The decision was made in an emergency meeting held in Vienna, Austria, on Friday. The meeting was originally scheduled for Nov. 18, but it was pushed up a month as slowing demand sent crude oil prices down 56% since they rose to a record high of $147.27 a barrel in mid-July. Free-falling prices have alarmed many of the nations whose economies depend on oil exports.

Cut not enough to reverse falling prices

OPEC and demand: Many investors anticipated a larger production cut from OPEC to deal with falling demand in the slowing economy.

"Demand destruction is at over 2 million barrels a day," said Robert Laughlin, senior broker at MF Global. "What OPEC did today was a good gesture, but it wasn't enough."

OPEC president Chakib Khelil told reporters last weekend that any production cut could be "substantial," adding that the organization would try to stabilize prices between $70 and $90 a barrel.

Iran's oil minister, Gholamhossein Nozari, told reporters Thursday that OPEC needed to cut production by about 2 million barrels a day.

Iran ended up cutting its production by nearly 200,000 barrels a day. Saudi Arabia, the cartel's largest supplier of oil, cut by nearly a half a million barrels.

Though OPEC said it will revisit the cuts in its next meeting on Dec. 17, analysts believe it will be hard to convince the oil producing nations to further slash production.

"The Saudis took a third of the cut off the books," Laughlin said. "But the Saudi minister made pretty clear that this is the cut, and they're not going to get another one in December."

Second cut?: But if the cut wasn't enough to restore the market to equilibrium, Laughlin said we're headed towards oil at $50 a barrel. If oil sinks below $50, he said OPEC will be forced to act and cut production again.

In its statement, the cartel seemed to anticipate continued demand destruction and falling prices through the winter months.

"This slowdown in oil demand is serving to exacerbate the situation in a market which has been over-supplied with crude for some time," the statement said. "Moreover, forecasts indicate that the fall in demand will deepen, despite the approach of winter in the northern hemisphere."

"They'll probably have to cut (production) in December," said Beutel of Cameron Hanover. "It doesn't look like they've cut enough to bolster prices."

Gasoline: The fall in world oil prices since July has pushed gasoline in the United States, the world's largest oil consumer, from a high of $4.114 a gallon on average to $2.781 a gallon Friday, according to motorist group AAA.

A report from the Department of Transportation also showed that Americans reduced the number of miles they drive by 5.6%, or 15 billion miles, during the month of August compared to the same month last year. That was the largest monthly drop in miles traveled since the department began reporting data in 1942.

According to the U.S. Department of Energy, gasoline consumption for the past four weeks averaged 8.8 million barrels a day, or 4.3% lower than the same period last year.

Oil prices settled up $1.09 to $67.84 a barrel Thursday in anticipation of OPEC's production cuts. To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.