Oil: US prices fall after New York plane crash

7.30 am

NEW YORK - US oil prices fell after a plane crash in New York heightened demand worries, adding to market disappointment over a token oil production cut that Russia has offered to help OPEC shore up battered oil prices.

The market was also weighed down by an International Energy Agency (IEA) report that the West has a comfortably large stockpile of oil ahead of the winter.

On the New York Mercantile Exchange (NYMEX), crude oil for December delivery finished the day down 99 cents at $US21.23 a barrel.

In London, December Brent crude also lost 99 cents to slide to $US20.39 a barrel.

The Organisation of Petroleum Exporting Countries, which controls two-thirds of world oil exports, is widely expected to cut output by 1.5 million barrels per day (bpd), its fourth such action this year, at its meeting on Wednesday in Vienna.

But it has received only faint signs of cooperation from non-OPEC producers to also make reductions or freeze output at current levels. So far, Mexico and Russia have offered minor support, while Norway has said it has no intention of reducing output.

News that an American Airlines Airbus A300 flight with 255 people on board had crashed in the New York borough of Queens soon after taking off from John F. Kennedy airport heightened concerns about air travel demand.

"NYMEX crude started falling off when we heard they were closing the airports...that will spark a new wave of fear of flying," said a NYMEX floor trader.

Demand had already slumped following the Sept. 11 plane attacks.

Since that date oil prices have fallen 25 per cent.

Oil prices spiked on Friday after Russian Prime Minister Mikhail Kasyanov said Russian companies had proposed cutting supplies and the government would support the plan.

But on Monday an official Russian spokeswoman said local oil firms had agreed on a cut of only 30,000 bpd in the fourth quarter and early 2002.

"We had a two-day rally based on a lot of speculation, but the market still has a weak undertone," said Jim Ritterbusch, president of Ritterbusch and Associates.

Saudi Arabia conceded for the first time on Monday that it was no longer targeting a high-price band for OPEC oil of $US22 to $US28 a barrel.

In a joint statement with Russia, the two countries agreed on the need for coordination to secure a "fair" oil price of between $US22 and $US25, the official Saudi press agency SPA reported.

An OPEC spokesman said the cartel's official target range still was $US22 to $US28. The OPEC reference basket price rose to $US19.53 on Friday, the 35th consecutive day that the price had been below the $US22 level.

In a bid to shore up prices, OPEC, which controls two-thirds of the world's oil exports, has this year cut output of its members by 3.5 million bpd.

A further 1.5 million bpd reduction would reduce output among 10 member nations, excluding sanctions-bound Iraq, to 21.7 million bpd, or by 19 per cent this year.

That would take OPEC output to the lowest level since 1990.

But the OPEC production cut will be counterbalanced by comfortable stockpiles of oil for winter in the West.

According to energy watchdog the International Energy Agency (IEA), western inventories grew rapidly after the Sept. 11 attacks darkened an already gloomy economic outlook.

Commercial stocks among the industrialised nations of the Organisation for Economic Cooperation and Development rose 1.18 million bpd in September and 500,000 bpd on average in the third quarter to reach 2.6 billion barrels, the IEA said Monday.

On the NYMEX, December heating oil prices dropped 2.73 cents to 59.95 cents a gallon, while gasoline lost 3.26 cents to 57.45 cents a gallon.

- REUTERS

* The New Zealand Herald will publish a special edition today with updated coverage of the New York city plane crash. This special edition will be on sale in Auckland and main provincial cities at midday.

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