Oil slumps ahead of OPEC meeting

November 28, 2008 10:40:29 AM PST
Oil prices slumped Friday with little indication from OPEC members that there would be any production cuts before a regularly scheduled meeting in December. Gasoline prices continued their free fall and are now at levels not seen since Jan. 21, 2005 - good news for travelers heading home after Thanksgiving getaways.

Pump prices fell a penny overnight to a national average of $1.835 for regular unleaded, according to auto club AAA, the Oil Price Information Service and Wright Express.

The average national price has fallen 75 cents in the past month alone and is down 41 percent from the $3.09 retailers were getting on average a year ago.

Midway through an abbreviated session on the New York Mercantile Exchange, light, sweet crude for January delivery fell 5.6 percent, or $3.07 to $51.37 a barrel. Trading was closed Thursday in the U.S. for the Thanksgiving holiday.

The price has bounced around all week - up 9 percent Monday, down 7 percent Tuesday, up again Wednesday more than 7 percent - before retreating Friday in light trading that tends to be more volatile.

"We were a little overcooked earlier this week, so it looks like we're going to give some of it back today," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

Oil prices have fluctuated between $50 and $55 this week, pausing after a fall of more than 60 percent since reaching a record $147.27 in mid-July.

Grim economic data this week pointing to a severe recession in the U.S. in the fourth quarter and signs of slowing growth around the world have kept prices from rebounding further.

"The drop-off in demand is going to continue," said Jonathan Kornafel, Asia director at market maker Hudson Capital Energy in Singapore. "There's no reason for the market to rally."

Oil will likely trade below $50 a barrel and could test the $40 level by the end of the year, Kornafel said.

Investors will be watching whether the Organization of Petroleum Exporting Countries reduces output quotas at an informal meeting Saturday in Cairo, Egypt.

While ministers arriving Friday said little, Nigerian envoy Odein Ajumogobia said the ministers were "just going to exchange ideas and views" at the gathering.

"I don't expect a cut out of the Cairo meeting, but I do expect a 1.5 million barrel cut at their December meeting," Kornafel said. "I wouldn't be surprised to see Russia get in with OPEC either."

Energy analyst Catherine Hunter at IHS Global Insight in London said chances for the implementation before January of further output cuts by OPEC were slim, because of advance sales allocations by several members.

"This makes the meeting more about New Year's resolutions, rather than the immediate present, whatever the rhetoric surrounding Saturday's event," Hunter said in a report.

In other Nymex trading, gasoline futures fell 5.28 cents to $1.148 a gallon. Heating oil dropped 7.88 cents to $1.6828 a gallon while natural gas for January delivery tumbled 56.8 cents to $6.31 per 1,000 cubic feet.

In London, January Brent crude fell $2.26 to $50.87 on the ICE Futures exchange.

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Associated Press writers Pablo Gorondi in Budapest, Hungary, and Alex Kennedy in Singapore contributed to this report.

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