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article imageOPEC Cuts Production, Prices Continue to Drop

By Bob Ewing     Oct 24, 2008 in Business
The Organization of Petroleum Exporting Countries announced a production cut but this move did not prevent a price selloff.
In London, crude oil futures fell 6% Friday despite a 1.5 million barrel production cut announced by the Organization of Petroleum Exporting Countries failed to arrest a price selloff.
The rollback,will take effect Nov. 1, and was apparently insufficient to counter a slowdown in global growth and sluggish oil demand, market participants said.
"Look at the world economy melt," a trader in London said.
"We needed something closer to two [million barrels a day] for any support."
The front-month December Brent contract on London's ICE futures exchange was down $4.51 at $61.41 a barrel after earlier dropping to a 17-month intraday low at $61 a barrel.
The front-month December contract on the New York Mercantile Exchange was trading $4.65 lower at $63.19 a barrel after touching its lowest level in 15 months earlier in the session.
The ICE's gas oil contract was down $50 at $617.25 a metric ton,for November delivery, while Nymex gasoline was down 1128 points at 146.50 cents a gallon.
OPEC said lower demand and ample supplies were why output was reduced..
"The financial crisis is already having a noticeable impact on the world economy, dampening the demand for energy...and oil in particular," OPEC said in a press release after the decision was announced.
"This slowdown in oil demand is serving to exacerbate the situation in a market which has been oversupplied with crude for some time."
The collapse in oil prices have fallen over 55% since their mid-July peaks and this may jeopardize oil projects and threaten supply growth in the medium term.
The production cut was also offset by extreme turmoil in other markets. Earlier Friday, the Chicago Mercantile Exchange suspended trading of December futures for the Dow Jones Industrial Average and S&P futures on its Globex trading platform after they hit limit down, the maximum downward price movement allowed during a trading session.
A stronger U.S. dollar and weak equities were "simply overwhelming oil fundamentals," said Mike Wittner, global head of oil market research at Societe Generale in London.
Mr. Wittner said. "This is a constructive decision by OPEC, but it's just getting swept away."
OPEC's latest move is "not going to prevent a further [price] fall," given the strong U.S. dollar and demand erosion, a broker in London said.
"This cut will not be enough to reverse the current downtrend weighed heavily on by a continuous slowing global economy," a broker in London said.
"I'm sure we will see another cut before the year is out."
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