Oil drops over 4 percent after OPEC keeps output steady
PERTH – Oil fell more than 4 percent to $44 a barrel on Monday after OPEC agreed to leave existing output targets unchanged but vowed to enforce those curbs more strictly in an effort to put a firm floor under prices.
While top producer Saudi Arabia had signaled a week ago that it wanted better compliance with the cartel’s previous 4.2 million barrel per day (bpd) cut-backs rather than agree a fresh round of restraints, other members had campaigned for more action now to avert a further rise in already swollen oil inventories.
The group said it would meet again at the end of May to review progress. OPEC’s adherence with previous cuts has been estimated at roughly 80 percent and full compliance would take away more than 800,000 bpd more.
U.S. light crude for April delivery fell $1.88 to $44.32 a barrel by 2231 GMT (6:31 p.m. EST), after having earlier dropped as low as $43.85. London Brent crude fell $1.43 to $43.50.
“OPEC’s decision was a surprise. The market had priced in expectations of a cut last week so investors are obviously having to sell off now,” said Mark Pervan, a senior commodities analyst at the Australia & New Zealand Bank.
“With OPEC having made its decision, the market’s next focus will be U.S. economic data. We saw some weak data last week but they had been pretty much ignored.”
The decision to resist additional cuts for now reflected concern for the economy and a belief supply curbs so far have begun to remove the excess from oil markets, the Organization of the Petroleum Exporting Countries (OPEC) said in a communique after its nearly five-hour conference.
U.S. Energy Secretary Steven Chu said he was pleased with OPEC’s decision, although he still believed the United States should seek to become energy independent.
Oil prices have tumbled about $100 since record highs over $147 a barrel in July 2008 as the economic meltdown halts global energy demand growth, and a series of downgrades to the demand outlook has checked oil’s recovery from below $35 a month ago.
An OPEC report released Friday showed world oil demand contracting faster than expected, and the International Energy Agency lowered its oil demand forecast by more than a million barrels per day for 2009.