Oil Falls on Concern OPEC Cut Won't Halt Slide as Demand Drops

By Alexander Kwiatkowski

Oct. 24 (Bloomberg) -- Crude oil fell, heading for its fourth weekly decline, as OPEC's decision to slash production by 1.5 million barrels a day failed to ease concerns that the global economic slump is hurting fuel demand.

``The market expected a cut of 1 to 1.5 million barrels a day, and it got it,'' said Mike Wittner, London-based head of oil-market research at Societe Generale SA. ``This was already priced in.''

Crude oil for December delivery dropped as much as $4.79, or 7.1 percent, to $63.05 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $63.85 a barrel at 11:48 a.m. London time.

The 13 members of the Organization of Petroleum Exporting Countries decided to lower supply by 1.5 million barrels a day from November, oil ministers said today at the end of a meeting at the group's Vienna's headquarters. The reduction will be from the existing quota for 11 members of 28.8 million barrels a day.

Oil prices are down 27 percent from a year ago and 11 percent this week, heading for a fourth straight weekly decline. That's the longest losing streak since January 2007.

Brent crude oil for December settlement fell as much as $4.84, or 7.3 percent, to $61.08 a barrel on London's ICE Futures Europe exchange. It was at $61.89 a barrel at 11:52 a.m. local time.

`Not Good Enough'

``OPEC has offered the market all the ammunition they had,'' said Robert Laughlin, senior broker at MF Global Ltd. in London. ``With the bearish economic outlook and manufacturing in freefall, this accord is not good enough.''

Oil has dropped from the record $147.27 a barrel in New York on July 11 as slowing economic growth curbs demand.

China, the world's fastest-growing energy consumer, said its economy expanded at 9 percent in the third quarter, the slowest pace in five years. U.S. fuel demand fell 8.5 percent from a year ago, the Energy Department said Oct. 22.

OPEC's production cut was ``one quick decision,'' Saudi Arabian Oil Minister Ali al-Naimi said in an interview. The group's president and Algerian Oil Minister Chakib Khelil said at a news conference that the cut will be ``100 percent effective'' in stabilizing prices.

Saudi Arabia, the group's largest producer, will reduce its output target by 466,000 barrels a day. Iran, the second- biggest, will cut 199,000 barrels, OPEC said in a statement. Kuwait's share of the reduction will be 132,000 barrels and the United Arab Emirates' will be 134,000 barrels.

Another cut in December is ``possible,'' depending on how the oil market reacts, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said in an interview after the decision.

``The headline number is pretty much as the market was expecting,'' said Kevin Norrish, a commodity analyst at Barclays Capital. ``That said, there is the potential to go down by more than 1.5 million barrels a day.''

The last time OPEC decided to slash official quotas was at a December 2006 meeting in Abuja, Nigeria. The 500,000 barrel-a- day cut took effect in February 2007, expanding an earlier reduction agreed in October. The cuts were reversed later in 2007 as oil rallied.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

Last Updated: October 24, 2008 07:29 EDT