Oil: Price falls below US$59 on doubts over Opec cuts

NEW YORK - Oil fell on overnight as traders doubted all Opec members would follow Saudi Arabia's lead to curb output under an agreement reached last week.

US crude CLc1 settled down 52 cents at US$58.81 a barrel. The front-month contract lost US$1.68, more than 2 per cent, on Friday to hit its lowest level this year.

London Brent crude LCOc1 dropped 47 cents to US$59.21.

Top world oil exporter Saudi Arabia informed its Asian and US customers over the weekend it would cut supplies next month, following Opec's pledge to implement its first formal output cut since 2004. nSP69731

"This sends a message that Saudi Arabia is serious about this effort to buoy the market," said Tim Evans, analyst at Citigroup Global Markets in New York. "The market is flying in the face of that. Whether it is wise to taunt Opec in this fashion remains to be seen."

Opec on Friday agreed to remove a total of 1.2 million barrels per day (bpd) of oil from oversupplied markets.

But Opec ministers' lack of unity on how to implement the cuts before the hastily arranged talks has left uncertainty in traders' minds on how the group will implement the curbs.

Some analysts said relatively high prices - still three times the level in January 2002 - meant there was less pressure on Opec members to play a team game.

"The market is highly skeptical that Opec will deliver the promised cuts in crude oil production," said Tobin Gorey of the Commonwealth Bank of Australia. "Opec's discipline in sticking to output targets has been lax, at best, in the past."

"The market is challenging Opec," said Phil Flynn, analyst at Alaron Trading. "The feeling is that Opec could start cheating before the cuts even take effect. This is a question of Opec's credibility."

The Opec cut, its deepest since January 2002, has failed to halt oil's slide from its July peak of US$78.40 a barrel.

Some Opec ministers said another cut of 500,000 bpd could follow when the cartel meets next in Nigeria in December. They said they were concerned about high fuel stocks in consumer countries and a projected drop in demand for Opec oil in 2007.

But Opec President Edmund Daukoru said on Monday it was too early to decide if the cartel would have to trim production in December.

"I cannot say ahead of time whether we will cut or will not cut, just continue a process as it relates to the fundaments, and that's exactly what we are going to do," Daukoru said.

Analysts speculated that the market will soon find a bottom once the Opec cuts begin affecting global stock levels.

"The current stock levels are on the high side but it only takes half of the promised Opec cuts to make the worst behind us and this will gradually leave the market more exposed to supply disruption or lower production performance from non-Opec," said Olivier Jakob of Petromatrix.

The majority of Nymex crude speculators last week took the position that prices would fall further, the first time since March, according to data from the Commodity Futures Trading Commission.

- REUTERS