OPEC's reductions will be ``significantly less'' than agreed, amid doubts some members of the group will act at all, the London-based Centre for Global Energy Studies said in a report today. OPEC, which pumps about 40 percent of the world's oil, said on Oct. 20 that members would collectively cut output by 1.2 million barrels a day to prop up prices.
``If OPEC is going to be an effective organization it will have to send a clear signal that it will follow through with these cuts,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. ``The Saudis are telling customers that they can expect less oil but we have yet to see any movement from the smaller OPEC members.''
Crude oil for December delivery fell 80 cents, or 1.4 percent, to $58.53 a barrel at 10:55 a.m. on the New York Mercantile Exchange. Futures are down 3.4 percent from a year ago. Prices have plunged 25 percent from the record of $78.40 a barrel reached July 14.
CGES, which was founded by former Saudi oil minister Sheikh Zaki Yamani, said OPEC's determination to reduce supply shows the organization is trying to defend a price of ``at least $55 a barrel for its basket of crude oil grades.'' The OPEC basket price stood at $54.56 on Oct. 19.
Saudi Exports
Saudi Arabia will cut shipments to Japan, its largest customer, in November for the first time in more than two years after last week's decision by OPEC's members. Supplies to Japanese refiners will be reduced as much as 8 percent below contractual volumes, refinery officials said.
``I'm surprised that OPEC is being given such a hard time,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons Inc. in St. Louis. ``The news from Asia shows that the Saudis are on board, but doubts about other members remain.''
OPEC's Oct. 20 statement said 10 of its members, all except Iraq, would ``reduce production by an amount of 1.2 million barrels a day, from current production of about 27.5 million barrels a day, to 26.3 million barrels a day, effective 1st November 2006,'' adding that the decision would be subject to review at a Dec. 14 meeting in Abuja, Nigeria.
``The Saudis immediately informed customers that they will reduce shipments and OPEC made it clear that they were open to a follow-up cut in December, which signals that they are serious about supporting prices,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York.
Brent crude oil for December settlement fell 63 cents, or 1.1 percent, to $59.05 a barrel on the London-based ICE Futures exchange.
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