|A desert oil field in Bahrain. That country is a member of OPEC which produces 40 percent of the world's oil. (Hasan Jamali/ Associated Press)|
Crude falls despite OPEC project cuts
NEW YORK - Oil prices fell yesterday as another round of poor company earnings and job cuts tempered an OPEC statement that dozens of production projects were being tabled.
Light, sweet crude for March delivery fell 61 cents on the New York Mercantile Exchange. Oil prices jumped earlier in the day to $42.43 as OPEC Secretary General Abdalla el-Badri's said the cartel would postpone 35 of 150 new oil and gas projects.
El-Badri said the group would likely fall short of its goal to raise production capacity by 5 million barrels per day by 2012, according to a research note by analyst Addison Armstrong. The OPEC secretary also said the cartel is close to completing its previously disclosed cut of 4.2 million barrels per day.
Crude producers have been hit hard by falling prices, but industry experts warn that taking production projects off line is short-term thinking.
"They're only hurting themselves," said Phil Flynn, an analyst at Alaron Trading Corp.
Any spike in crude prices because of production declines from the Organization of Petroleum Exporting Countries will make it harder for economies to recover and for demand to pick up naturally, Flynn said.
"And when demand picks up, they won't have the production capacity to meet it," he said.
OPEC produces about 40 percent of the world's crude oil.
Despite OPEC's statement, oil prices dropped back to below $40 by midday.
Oil traders and brokers have come to terms with the new state of the oil industry after a frenetic 2008 in which prices spiked above $147 a barrel, then crashed to close $30.
They have digested the massive jobless numbers from the government, the rounds of corporate retrenchment, and the bloated crude inventory numbers. In the past week, traders have come to a rough consensus of what a barrel of crude is worth, analyst Peter Beutel said.
"We've reached an equilibrium point," Beutel said. "They're willing to trade below $40, but by the end of the day, there's always enough bidding to push it back above that level."
Evidence that energy demand will remain depressed continued to roll in yesterday.
Nissan forecast its first annual loss in nine years and said it will slash 20,000 jobs from its workforce. Chief executive Carlos Ghosn blamed the carmaker's loss on the global economic slump and the appreciating yen.
In other Nymex trading, gasoline futures dropped 3.6 cents to settle at $1.2471 a gallon. Heating oil lost less than a penny to settle at $1.3523 a gallon, while natural gas for March delivery rose 3.3 cents to settle at $4.807 per 1,000 cubic feet. The March Brent contract fell 19 cents to settle at $46.02 on the ICE Futures exchange.