The Nymex contract fell 91 cents overnight to settle at $43.60 despite signs the Organization of Petroleum Exporting Countries planned to announce a significant reduction of output quotas at its meeting Wednesday in Algeria.
Saudi oil minister Ali Naimi said Wednesday that there was consensus among OPEC members, who account for about 40 percent of global supply, to cut production by 2 million barrels per day from Jan. 1.
The 13-nation oil cartel already announced cuts totaling 2 million barrels a day in September and October, but the moves so far have failed to stem a 70 percent drop in crude prices since July.
“You can’t take that much oil out of the market and not impact it,” said Gerard Rigby, energy analyst at Fuel First Consulting in Sydney. “If OPEC can keep its discipline, you’d expect these cuts to tighten the market.”
Investors may wait to see if OPEC follows through with any announced cuts before bidding prices higher, he added.
“OPEC has lacked credibility for a long time on discipline,” Rigby said. “OPEC is going to have to show they are committed to the cut, that it’s not just talk.”
If investors brush off another OPEC cut and continue to focus on weakening global crude demand, non-OPEC producers may join the cartel in lowering output.
“It could put pressure on Russia to make an announcement,” Rigby said. “If OPEC can get Russia to commit to a cut, that would definitely support the market.”
Still, many analysts were expecting oil prices to continue falling next year, with weakening demand caused by the global economic downturn outpacing the OPEC output cuts.
IHS Global Insight Chief Economist Nariman Behravesh was the latest of several experts issuing forecasts in the past few days saying that prices for commodities, including oil, would fall further in 2009.
“Oil prices will (easily) fall below $40 per barrel in the next year, and could tumble all the way to $30,” Behravesh said in a research note. “With the economic outlook deteriorating by the day, futures markets for commodities have not priced in the full extent of the ‘demand destruction’ taking place.”
Investors will also be watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday by the U.S. Energy Department’s Energy Information Administration.
The report is expected to show that oil stocks fell 900,000 barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The Platts survey also projects that gasoline inventories rose 1.5 million barrels and distillates dropped 1.8 million barrels last week.
In other Nymex trading, gasoline futures rose 4.34 cents to $1.0834 a gallon. Heating oil gained 6.19 cents to $1.5222 a gallon while natural gas for January delivery jumped 3.1 cents to $5.782 per 1,000 cubic feet.
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