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Oil prices fell Friday (Oct. 20) in a sign of traders’ skepticism that the Organization of Petroleum Exporting Countries (OPEC) will cut output by 1.2 million barrels a day, even as some cartel members said further reductions were possible.
The Associated Press reported that the pledge to rein in output, announced Friday after an emergency meeting in Doha, Qatar, comes as oil prices have dropped by more than 25 percent since a mid-July peak above $78 a barrel.
But many analysts believe OPEC will have difficulty enforcing the production cut in its entirety because oil prices are still twice as high as they were just three years ago.
“It’s clear there will be some production cutbacks. But is it going to be 1.2 million barrels? That’s probably unlikely,” said Andrew Lebow, a broker at Man Financial.
Light sweet crude for November delivery on the New York Mercantile Exchange fell $1.05 to $57.45 a barrel. In London, December Brent crude on the ICE Futures exchange declined by 52 cents to $60.35 a barrel.
Oil prices have slumped since July due to rising global supplies, a weaker-than-anticipated hurricane season and expectations for slower economic growth.
“The question now is whether OPEC members will comply with the new quotas or whether history will repeat itself and OPEC members over-produce,” Global Insight analyst Simon Wardell said in a research note. “The markets appear to be betting on the latter.”
United Arab Emirates Oil Minister Mohammed bin Dhaen al-Hamili said the reductions will come from actual production levels, which are believed to be about 29.5 million barrels of oil per day.
The official OPEC quota, which does not include Iraq’s estimated output of 2 million barrels a day, is 28 million barrels a day.
OPEC’s announced cut was the first since December 2004, when oil traded slightly above $40 a barrel. It will take effect Nov. 1, just as global oil demand should begin to rise as winter approaches in the Northern Hemisphere.