Crude oil prices rise from 16 month lows as OPEC arrives at production cut concensus

24-Oct-08

Crude oil rose from 16 month lows on news that OPEC members had reached a consensus on the need to trim production. An agreement on the size of the reduction has to be yet arrived at by the oil cartel. A decision for production cuts has been triggered by the need to balance the market, after prices plunged by over 50% since July. Crude oil for December delivery settled a dollar higher at US$67.84 a barrel on the New York Mercantile Exchange. Prices are down 20% from year ago levels. Analysts look forward to the size of the cut because under current circumstances, unless something huge is announced, the market will eventually start moving lower again because of the weak economy. Interestingly, prices for the OPEC basket of crude oil have actually fallen 11% since OPEC moved up the date of its Vienna meeting. So why have oil prices plunged? As per the Oil Drum, several factors are responsible for this: including softening demand from the U.S. to Asia; the financial crisis, credit crunch and a rebounding dollar; and hedge funds unwinding crude positions and computerized trades that move like lemmings. Slowing economies making and shipping fewer goods seem to be poised to continue, and the demand situation is looking a lot bleaker than many rosy.