By Javier Blas, Commodities Correspondent
Oil prices fell sharply on Monday, approaching the $50 a barrel level, after Opec delayed a production cut until mid-December after a meeting over the weekend in Cairo.
The oil cartel, which controls 40 per cent of the world’s production, said oil demand was weakening fast, but agreed to wait until a meeting in Oran, Algeria, on December 17 to reduce further its output.
Abdalla El-Badri, Opec’s secretary-general, said on Saturday there was “general consensus for action in December”.
Ed Meir, of MF Global in New York, said that despite knowing full well that the oil markets are over-supplied, Opec decided to pass on making any quota cuts at its weekend meeting in Cairo.
“Apparently, Gulf producers insisted on stricter compliance of existing cuts before new ones were introduced,” Mr Meir said.
The cartel has promised to lower its production by 2m barrels a day in the last two months, but analysts said it has cut about 1-1.2m b/d so far.
In morning trading in London, Nymex January West Texas Intermediate fell $2.52 to $51.91 a barrel while ICE January Brent fell $2.54 to $50.95 a barrel.
Some Opec countries, such as Iran and Venezuela, had indicated they would support a cut of 1m-1.5m b/d at the meeting in Oran.
The drop in prices came in spite of King Abdullah of Saudi Arabia, world’s largest oil producer, signal over the weekend that he wanted oil prices to rise back to $75 a barrel from their current of about $50 level.
Olivier Jakob, of oil consultancy Petromatrix, said that the fact that Saudi Arabia is back to mention a fair price marks a significant departure from the previously held line that the price is set by the market.
Mr Jakob added: “If the King wants crude oil to be at $75 a barrel, the words need to be followed by action and this weekend gathering of Opec ministers did not provide any new signs of that.”
“This was Opec at its worse and clearly a weekend not of Thanksgiving but of misgiving.”
Base metals were mostly higher following a report that China will buy about $3bn worth of tin, copper, aluminium, lead and zinc. China’s Yunnan province will buy 1 million tonnes of base metals to help smelters in the region that are struggling with weak domestic demand and low prices, Reuters said quoting a report on the Chinese Ministry of Land and Resources’ website on Monday.
On the London Metal Exchange, tin prices surged briefly 10 per cent on the news that Yunnan province will buy 100,000 tonnes of the metal – equal to about a quarter of the world’s output – but prices later pared gains amid doubts about the report. In morning trading, tin was up 0.4 per cent to $12,500 a tonne.
Copper was 1.1 per cent higher to $3,700 a tonne while zinc and lead posted gains of about 1 per cent. Aluminium was flat at $1,776 a tonne.
Agricultural commodities were mixed, with wheat, corn and soyabean down and sugar, cocoa and coffee up.
Copyright The Financial Times Limited 2008