Opec will closely monitor the market this time
The Organisation of Petroleum Exporting Countries (Opec) is concerned about a fall in oil prices after it cut output by 1.5 million barrels per day but it will take time to determine whether the reduction is deep enough, Kuwait's oil minister said.
"Yes we do worry. But we have to watch," Mohammad Al Olaim said. Even though crude prices fell by nearly $5 after the agreement, Olaim said the 12-member producers' group will not need to gather again to consider another cut before a Dec-ember 17 meeting.
"I think this is enough time to evaluate the effect of the decision," he said.
Benchmark US crude has slumped by close to 60 per cent from a record high of $147.27 in July. On Friday, it fell again to below $63 a barrel.
Despite the price fall, Olaim said the scale of the cut should not have surprised markets as it had already been factored in.
"I think what we have done, the market was already prepared for. I think it was priced in."
Opec's failure to respond to a collapse in demand to the Asian crisis in 1998 helped push oil to less than $10 a barrel.
Olaim said Opec will closely monitor the market this time. "They [Opec] will keep an eye on the market. If the market required [action] we have to be there," he said.
Opec members have stressed they do not want to inflict more pain on consumer nations suffering from the global financial crisis. But they argue that if prices fall too low it would prevent investment in raising output in future.
Impact: Options contracts soar
Oil options contracts to sell crude at $50 by December almost tripled on Friday after an Opec decision to slash production failed to allay concerns that the global economic slump is hurting demand.
The cost of the $50 December 2008 put option, which gives the holder the right to sell oil futures at $50 a barrel, rose as much as 142 per cent to $1.50 on the New York Mercantile Exchange, compared with 62 cents Thursday, according to exchange data. "It certainly seems to me that we could get down to $50 a barrel," Adam Sieminski, Deutsche Bank's chief energy economist, said.