Market is not controllable by OPEC: Global crude prices plummet...

[link to www.iranoilgas.com]

Date: Sunday, October 26, 2008
Source: Platts/ Bloomberg

Global crude futures plummeted in early Friday despite news that OPEC agreed to cut crude production by 1.5 million b/d as market sentiment remains fundamentally bearish, sources said.

In addition, the dollar continued to strengthen, hitting a two-year high against the euro and a six-year high against the British pound.

Front-month ICE Brent traded as low as $61.08/barrel, down $4.84 from the overnight settle and the lowest level since March 22, 2007. Front-month NYMEX light sweet crude also broke all resistance levels, dropping by $4.79 to $63.05/b, the lowest level since May 31 2007.

November ICE gasoil futures also plunged, falling to $619/mt, its lowest level since 22 August, 2007 and down $48.25 from the overnight settle.

"The psychology is massively bearish for all asset classes and it could overemphasize the situation with oil," a London-based broker said.

"It is not controllable by OPEC," the broker added. "OPEC will have a harder job this time and I don't think we will have a massive recovery in oil prices."

Oil options contracts to sell crude at $50 by December almost tripled after an OPEC decision to slash production failed to allay concerns that the global economic slump is hurting demand.

The cost of the $50 December 2008 put option, which gives the holder the right to sell oil futures at $50 a barrel, rose as much as 142 percent to $1.50 on the New York Mercantile Exchange, compared with 62 cents yesterday, according to exchange data.

"It certainly seems to me that we could get down to $50 a barrel," Adam Sieminski, Deutsche Bank's chief energy economist, said in a Bloomberg Radio interview today. "You could look at the OPEC cut as a sign of weakness, not strength."

OPEC agreed Friday to cut its crude production by 1.5 million b/d with effect from November 1, to 27.308 million barrels a day, Libya's top oil official Shokri Ghanem said after the oil cartel's emergency meeting in Vienna.

The reduction was also confirmed by Iranian oil minister Gholamhossein Nozari as he left the meeting, which lasted for around an hour and a half.

OPEC's 12 members bound by its production agreements currently have a combined output target of 29.673 million b/d.

The dollar strength also continues to impact sentiment, market sources said. The ICE Dollar Index traded just short of 87, the highest for two years.

"The rise in the dollar could explain at least 30% of the move in oil from its highs," an analyst said.