Oil prices slump despite OPEC threats

The US Commerce Department on Friday reported the largest ever October plunge for retail sales and a sharp drop in business inventories. It said retail sales fell by 2.8 per cent last month, surpassing the old mark of a 2.65 per cent drop in November 2001 in the wake of the terrorist attacks that year.

The decline in sales was led by a huge drop in auto purchases, but sales of all types of products from furniture to clothing fell as consumers retrenched.

That likely means fewer vehicle miles driven, both because of job losses and less trips to the shopping mall and less money spent on vacations. Businesses are slowing down as consumption drags.

The Commerce Department reported business inventories dropped by 0.2 per cent in September. It was the first decline since March 2007 and the biggest drop in more than three years, since inventories fell by 0.3 per cent in July 2005.

Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service, put the odds of oil dropping below $50 per barrel at about 50 per cent even as the ‘Organisation of Petroleum Exporting Countries’ repeatedly removes oil from the market to keep pace with deteriorating demand.

An OPEC official said the 13-member states would meet in Cairo on November 29 on the sidelines of a previously planned meeting for Arab members of the group.

The official asked not to be named because the Vienna-based organisation is not issuing a formal statement. OPEC held an emergency meeting only three weeks ago and slashed production by 1.5 million barrels a day. Crude has tumbled 8 per cent since then.

Analysts say OPEC’s rhetoric rarely matches what it does. Nevertheless, as the economy turns around, consumption of fuel will increase and send oil prices higher.

“In the long run global growth will be restored at some point,” Kloza said Friday. “It will do their dirty work for them.”

George Littell of Groppe, Long & Littell said OPEC’s recent cuts will not be felt for a few more weeks. He noted that prices did not begin to fall this summer until Saudi Arabia ratcheted up production in July.

Littell said oil prices likely will start to rally in a few weeks once OPEC cuts start to hit and cold weather sets in across the country.

Jim Ritterbusch, president of energy consultants Ritterbusch and Associates, said OPEC needs to do something. If OPEC were to maintain production levels, oil consuming countries would be happy, but it probably would drag prices down another $5 or $10 a barrel, he said.

Oil prices have fallen about 60 per cent during the last four months after reaching $147.27 in July.

OPEC, which produces about 40 per cent of world supplies, has said it may cut production by the end of this month if prices continue to fall.

Before the 1.5 million barrel cut, OPEC said it was taking 520,000 barrels out of daily production. That too was brushed off by the market.

Meanwhile, the government said Friday that natural gas stockpile levels in the U.S. rose more than expected last week, but are 2 per cent below the year-ago average.

The Energy Department’s Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states rose by 62 billion cubic feet to about 3.47 trillion cubic feet for the week ended November 7.

Analysts had expected a boost of between 41 billion to 46 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill.

The news sent natural gas for December delivery down less than a penny to settle at $6.312 per 1,000 cubic feet on the New York Mercantile Exchange on Friday.

In other Nymex trading, heating oil futures fell 4 cents to $1.8351 a gallon, while gasoline prices dropped 6 cents to $1.24 a gallon.