The oil producers' cartel Opec has agreed to make a record cut in output, slashing 2.2 million barrels per day (bpd) from its current supply. Opec has made two other cuts since September, meaning it has cut a total of 4.2 million bpd in four months. Despite the record cut, oil prices continued to fall as US data provided fresh evidence of falling demand. US light, sweet crude for January fell as low as $39.94 a barrel, its first time been below $40 since July 2004.
The falls were blamed on US inventories figures, which showed that demand for petrol in the four weeks to 12 December was down 2.7% from the same period last year. The price later recovered slightly to trade on the New York Mercantile Exchange at $40.31, which was down $3.29 from Tuesday's close.
Demand risks
Opec said that it hoped the record cut would boost prices but that it had no formal price target.
The Soddies think $75/barrel would be "fair," the Medes and the Persians would prefer $80.
The cut means that the target for production for the 12 member states is now 24.845 million bpd. The cut is effective from 1 January, but the big question with Opec production cuts is always whether the member states will actually make the cuts they have agreed to. "Given the still-substantial risks to demand and ongoing scepticism on Opec compliance, it could take some time before prices recover materially above $50 to $55 per barrel," said Gordon Gray from Collins Stewart.