U.S. oil prices slid for the second straight day on March 9 as traders speculated on the size of a widely-expected supply cut by the OPEC producer cartel next week.
On the New York Mercantile Exchange (NYMEX) crude oil for April delivery settled 38 cents lower at $28.01, little changed over the week.
Traders turned cautious as a Saudi official said that though the oil producers' cartel was heading toward its second production cut this year when it meets next week, the magnitude of the cut remained undecided. Market estimates of the likely supply reduction range from 500,000 to a million barrels bpd out of the group's current 25.2 million bpd supply quotas.
Despite the fall, traders said the market's outlook remains bullish as U.S. crude stocks remain tight, having fallen to 25-year lows last week. A round of talks between oil superpowers Saudi Arabia, Venezuela and non-OPEC Mexico will precede the March 16 meeting in Vienna.
Saudi Arabia, the world's biggest oil producer, Venezuela and Mexico, all key U.S. suppliers have combined since early 1998 to curb supply and revive oil prices from their $10 lows to peak at more than $37 last year. OPEC cut daily output from February 1 by 1.5 million barrels to keep prices high when winter demand tapers off, amid growing signs that economic slowdown is eroding petroleum demand growth.
That has placed OPEC in a delicate position of deciding how much it can reduce output without harming a fragile world economy, especially the U.S. which gobbles a quarter of the world's oil.
Concern that prices may rise too high with a large cut, stifling demand further, might lead OPEC to opt for a compromise 750,000 bpd cut, market watchers say.
The U.S. has suffered a catalogue of energy woes over the last year as first gasoline and then heating fuel bills leaped to record levels, while California ran into a chronic shortage of power supplies.
So far, the Bush administration has eased the pressure of OPEC, saying it will not publicly lobby the cartel about output policy, in contrast to the strong rhetoric of former Energy Secretary Bill Richardson.
U.S. Energy Secretary Spencer Abraham has said he would opt for quiet diplomacy and that the market should drive crude prices.
Abraham said on Friday that he agreed with Mexican Energy Minister Ernesto Martens and Canadian Natural Resources Minister Ralph Goodale to work together to develop a unified energy strategy. - (Reuters)