Closing Market Report
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OPEC may have difficulty enforcing a 4% production cut, analysts say
By Brad Foss
Associated Press
NEW YORK » When OPEC speaks, energy traders listen. They just don't necessarily believe what they hear.
Oil prices fell to an 11-month low below $57 a barrel yesterday in a sign of the market's doubts about OPEC's willingness to carry out a 4 percent production cut.
The pledge to curb output by 1.2 million barrels a day, announced after an emergency meeting in Doha, Qatar, came after oil prices had fallen by roughly $20 since a mid-July peak above $78 a barrel. Some oil-cartel members warned output could be trimmed further when the group meets in December.
But many analysts believe the Organization of Petroleum Exporting Countries will have difficulty enforcing the production cut in its entirety because oil prices are still twice as high as they were just three years ago.
"It's clear there will be some production cutbacks. But is it going to be 1.2 million barrels? That's probably unlikely," said Andrew Lebow, a broker at Man Financial.
OPEC has a history of "cheating," or producing above its official quota, when prices are high and analysts are therefore reluctant to accept the cartel's intentions at face value.
Moreover, many analysts see OPEC's action as proof that the group responsible for supplying more than a third of the world's oil is increasingly worried about slowing demand growth and burgeoning supplies from non-OPEC sources.
"What brought us to this point -- where OPEC needs to reduce production by 1 million barrels a day -- is bearish for prices," James Cordier, president of Liberty Trading in Tampa, Fla. "The fact is, demand has fallen or is about to fall more and OPEC is trying to catch this by producing less."
Light sweet crude for November delivery on the New York Mercantile Exchange fell $1.68 to settle at $56.82 a barrel. The last time front-month futures settled below $57 was Nov. 29, 2005.