Oil prices slid towards a four-year low near US$45 a barrel yesterday and Opec's president said further falls were possible as US demand tumbled amid further deterioration of the world's biggest economy. The cost of a barrel has already dropped by nearly 70 per cent since hitting a record above $147 in July. "Prices can drop to a very, very low level; it depends on supply and demand conditions, inventory levels, and also the future of global economic growth," Chakib Khelil, the Opec president, said on a Spanish radio programme. "There is therefore no floor." The head of the International Energy Agency, which represents the interests of 27 oil importing nations, said prices had now fallen too far. Importers traditionally argue in favour of low prices, but the IEA is aware that a certain price is required to maintain investments to ensure adequate supplies in the future and make alternative energies economically viable. "Sometimes the market is overshooting upwards and downwards, and this time this is definitely happening downwards," Nobuo Tanaka, the IEA's Executive Director, told Reuters. "In the short-term the market sees disastrous demand. A contraction is happening, so the market is reacting a little too much ... The market is driving the price much lower than it should be." He did not say where oil prices should be. Mr Khelil said global inventories of crude oil were higher than normal for the time of year, with enough oil stockpiled to provide 56 days of demand, compared to an average of 52 days for the previous five years. But in the US, stocks of petroleum products fell last week, not because Americans were using more to travel and transport goods, but because refiners processed less crude. US government data showed Americans consumed 7.9 per cent less of fuels such as petrol and diesel in the past four weeks than in the comparable period a year ago. The figures were mirrored in declining operating rates at US refineries, as falling demand for petroleum products eroded refiners' profit margins. "Weakening demand remains the biggest concern in the market," said Ryuichi Sato, an analyst at Mizuho Corporate Bank in Tokyo. Oil demand has collapsed to such an extent that US petrol prices, net of taxes, have fallen below the cost of crude, so that refiners lose money on every litre of fuel produced. They have responded by cutting back on processing. A 1.8 percentage point decline in refinery operating rates last week to 84.3 per cent of capacity was the biggest single-week drop since September, when hurricanes Gustav and Ike forced US Gulf Coast refineries to suspend operations. Crude oil for January delivery dropped as much as 3.2 per cent yesterday to $45.26 on New York Mercantile Exchange, its lowest level since Feb 2005. Price declines for longer-term futures contracts have been more gradual, providing opportunities to profit from storing crude, and helping to explain the build in global inventories. In recent weeks, shipping companies have received multiple bookings for tankers to be used for oil storage. Initially, most of the floating oil depots were moored in the North Sea, but the trend has spread to Asia, pushing up the cost of shipping Middle Eastern Crude to customers in the Asia-Pacific. As many as 12 supertankers and four smaller vessels have been booked with a storage option, the London-based broker ACM Shipping Group said yesterday. In another sign that the world is awash with unsold oil, two surveys of global oil production suggested Opec has implemented less than two thirds of the production cut it promised in October. According to a Bloomberg survey of oil producers, refiners and analysts, Opec oil production fell by 2.1 per cent last month to an average 31.41 million barrels per day (bpd). A comparable Reuters survey found the Opec oil supply had declined 3 per cent to 31.2 million bpd. At an emergency meeting in late October, the oil exporters' group said it would cut output by 1.5 million bpd, effective Nov 7. At a follow-up meeting on Nov 29, it deferred announcing a further reduction until later this month, in part to allow itself more time to monitor compliance with the cuts already pledged, and to show the world it was acting cohesively to mop up excess oil supply. Signs are surfacing that some key Opec members are losing their enthusiasm for complying with lower production ceilings. According to Bloomberg, Iran, the second-biggest Opec producer, has cut output by only 80,000 bpd, well short of its 199,000 bpd commitment to Opec. Venezuelan supply fell by 20,000 bpd, well short of its allocated cut of 129,000 bpd, according to the -survey. Bloomberg found the group's leading producer, Saudi Arabia, reduced crude production by 300,000 bpd last month to average 9.05 million bpd - the lowest level in a year. Still, this was still 573,000 bpd in excess of its new quota and represented only 64 per cent of its promised 466,000 bpd cut. The UAE cut supply by 170,000 bpd, versus its allocated reduction of 134,000 bpd, the Bloomberg survey found. Official figures were not available. Ahead of Opec's meeting last week in Cairo, Saudi King Abdullah said $75 a barrel was a "fair price" for crude oil. In October, the International Monetary Fund estimated that the kingdom would need an average oil price of $49 a barrel to balance its budget for the 2008-2009 fiscal year. tcarlisle@thenational.ae
