Opec cut not enough to reverse slide

18/12/2008

Oil prices dropped below $40 (£25) during trading yesterday (Decemebr 17th) despite the Organisation of the Petroleum Exporting Countries' (Opec) decision to dramatically reduce supply.

At its monthly meeting in Algeria, the cartel decided on a production cut of 2.2 million barrels of oil per day in a hope that this would support demand and boost prices.

However, the market responded unfavourably to the news, with the New York Mercantile Exchange's main contract finishing the day at $40.06 a barrel.

Earlier on it hit a five-year low of $39.88 a barrel.

Ongoing crude price falls may soon have an effect on domestic heating oil, DERV, farm diesel and bunker fuel costs.

Commenting on the slide, Dina Cover, commodity economist with the Toronto-Dominion Bank, told the Globe and Mail: "Markets are saying, it's not enough, it's insufficient. We expect demand to fall a lot further and OPEC will probably have to cut again."

Announcing the cut, Opec president Chakib Khalil said that the cartel hoped it would come as a "shock" to buyers.