Options contracts to sell oil at $50 by December soared 50- fold in the past two weeks on the New York Mercantile Exchange.
The Organization of Petroleum Exporting Countries, which meets Oct. 24 in Vienna, three weeks earlier than planned, is facing the weakest growth in demand since 1993 just as new fields come on line from Angola to the Gulf of Mexico. Members may cut daily output by as much as 2 million barrels, President Chakib Khelil said yesterday.
Options contracts that allow holders to sell 1,000 barrels of oil for $50 each by December traded for $500 on the Nymex on today, up from $10 on Oct. 3. Oil rose a second day today, gaining 2.4 percent to $73.60 a barrel at 10:53 a.m. in London.
Even at today's prices, Venezuela and Iran, two of the organization's 13 members, may struggle to balance budgets because they rely on energy sales for more than half of their revenue, according to estimates compiled by the U.S. Central Intelligence Agency.
Gross domestic product in the six-member Gulf Cooperation Council of Saudi Arabia, United Arab Emirates, Kuwait, Oman, Qatar and Bahrain would shrink 25 percent if oil averaged $50 next year, ING Bank NV estimates.
Ministers from Algeria, Libya, Iran and Venezuela already called for a reduction in supplies from the current quota of 28.8 million barrels a day. Khelil, also Algeria's oil minister, said that while there is consensus for a cut, there is no agreement on its size. It may be necessary to make the cuts in two stages to ensure price stability, he told Algerian state television yesterday.
OPEC is likely to cut by a million barrels a day on Oct. 24 and will need to announce further reductions to prevent prices falling below $60 a barrel, Goldman Sachs said on Oct. 17. Merrill Lynch analysts said the group may trim supplies by 2.4 million barrels a day over 12 months if economic conditions deteriorate.
U.S. motorists are driving less after gasoline pump prices topped $4 a gallon in July. Vehicle-miles traveled on all U.S. roads that month were 3.7 percent lower than a year earlier, Federal Highway Administration data show. Prices fell to an average of $3.21 a gallon last week, according to the Department of Energy.
As demand declined, OPEC trimmed supplies 3.8 percent to 31.8 million barrels a day in September, according to Geneva- based tanker-tracking service PetroLogistics Ltd. Saudi Arabia's volume fell 520,000 barrels a day to 9.18 million, PetroLogistics said.
The last time OPEC slashed quotas was at a December 2006 meeting in Abuja, Nigeria. That 500,000 barrel-a-day cut took effect in February 2007 and followed an earlier, 1.2 million- barrel reduction in October 2006. Those actions were reversed later in 2007 as prices rallied.