Failure to act means crude prices could fall further

New York: A decade after Opec failed to prevent oil from collapsing to $10 a barrel, the world's biggest producers are delaying actions needed to arrest the steepest slide in energy prices.

Ministers from Opec postponed debate on a second cut in output in as many months during meetings in Cairo on Saturday. They will wait until later this month, after a slump in global economies and the popping of the commodities bubble sent oil down almost $100 from its record price in July to as low as $48.25 a barrel in New York on November 21.

"They are riding the economic wave just like the rest of us," Adam Sieminski, Deutsche Bank AG's chief energy economist, said in a telephone interview in Washington. "In the past when there has been a big economic downturn, Opec has had to go through a series of cuts to stabilize the oil market."

They haven't done enough this time around to halt the 67 per cent drop. Merrill Lynch & Co, forecasting the first contraction in global demand in a quarter century, sees crude bottoming at an average $43 a barrel in the first quarter, 21 per cent below where it ended last week. In December 1998, crude tumbled 61 per cent from its peak to as low as $10.35 when Opec failed to eliminate a supply glut.

Opec members, the producers of 40 per cent of the world's oil, said at the Cairo meeting that they would wait to gauge the effect of a 1.5 million-barrel cut agreed to on October 24. That reduction was meant to restrict Opec's daily output by 5.2 per cent, about the same amount that Spain, the world's ninth-largest economy, uses in a day.

Ali Al Naimi, the oil minister of Saudi Arabia, Opec's largest exporter and its de facto leader, said in Cairo that $75 a barrel oil represents a "fair price" needed to support investment in new fields. The group's next meeting is in Oran, Algeria, on December 17.

Oil fell as much as $99.02 a barrel from its July record, making the four-month slump steeper than crude's drop from its 1996 peak to the low set in December 1998.

At that time the hesitation of countries including Iraq, Venezuela and Russia to rein in output amid the Asian financial crisis and a warm US winter contributed to the decline. Now, sinking demand is the main issue as the world's largest economies slip into recession.

Crude oil for January delivery dropped as much as $1.47, or 2.7 per cent, to $52.96 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $53.07 at 10:19am in Singapore.

Opec, the International Energy Agency and the US Energy Department reduced consumption projections last month because of the economic outlook. Opec trimmed its forecast for average oil use next year by 530,000 barrels, or 0.6 per cent, and the IEA cut its estimate by 670,000 barrels, or 0.8 per cent.

"Prices are coming down because demand is," said Robert Ebel, a senior adviser on energy and national security at the Center for Strategic and International Studies in Washington. "There's no way of knowing how long this will continue."

US crude supplies rose for a ninth week, the longest stretch since April 2005, the Energy Department said on Wednesday. US fuel demand declined the most in 27 years in the first 10 months of this year, the American Petroleum Institute reported on November 18.

The world's three biggest economies, the US, Japan and Germany, are in - or close to - recession.