Crude futures fall on lower demand
Not even an extraordinarily cohesive effort by oil producers to rein in production was enough to keep crude oil futures from falling Monday in the face of more bad news about the global economy.
Meanwhile, the lack of demand that has depressed oil markets since last summer was beginning to show up in retail gasoline prices. The average price of a gallon of self-serve regular gasoline fell 0.9 of a cent to $1.838 in the week ended Monday, according to the Energy Department’s weekly survey of filling stations. That ended three straight weeks of gradually rising prices.
California’s average increased for the sixth straight week, but only by 3.1 cents this time, to $2.095. A year ago, the national average was $1.139 higher per gallon and California’s average was $1.053 higher.
Crude oil futures for March delivery finished the day down 74 cents to $45.73 a barrel on the New York Mercantile Exchange after trading as high as $48.59 a barrel on evidence that the Organization of the Petroleum Exporting Countries was making good on two 2008 pledges to rein in the amount of oil its members put on the world’s markets.
In the past, OPEC production cuts came primarily from Saudi Arabia, while other members of the 13-nation coalition usually did little, said Lester Lave, an energy expert and a professor at the Carnegie Mellon University School of Business. Since Jan. 1 most members have been living up to their promised output cuts, with a goal of 4.2 million fewer barrels a day.
“I’m amazed. I’m not sure what’s gotten into them,” said Lave, who added that OPEC is walking a tightrope.
Cutting production too much, he said, could depress global economies even further, accelerate unemployment and reduce demand for oil even more. And if OPEC did nothing to reduce the current surplus of available oil, it could watch the price drop as low as $20 a barrel.
“The Saudis have told us and their partners for a long time, if you get too greedy and cut production too much, you’ll get money in the short term, but in the long term you risk killing economies and demand for oil,” Lave said.
Other analysts said the oil markets Monday weighed the relative strengths of an OPEC acting in concert and fears of a collapse of the world’s economies -- and collapse won.
“A lot of people are arguing that demand is down a lot more than what OPEC has been able to cut,” said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago.
Nor is it clear that OPEC will be able to sustain its restraint when some of its members, including Iran, Nigeria and Venezuela, depend so heavily on oil revenue.
“That is always the problem they have had in the past,” said Amy Myers Jaffe, senior energy analyst at Rice University’s James A. Baker III Institute for Public Policy. “Are things bad enough for OPEC to stick to it this time? The jury is still out on that.”
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