Oil drops to 17-month low as investors ignore OPEC cuts

Oil prices fell to a 17-month low Monday, trading below $62 a barrel as investors appear to be deeply concerned about growing evidence of a severe global economic slowdown that would undermine crude demand. That would have an adverse effect on Trinidad and Tobago's revenue and a negative impact the country's development projects.

So far the Manning administration is adamant that the market volatility won't last and things would settle down and keep oil prices stable. But the evidence in the global market appears to be suggesting otherwise.

On Monday light, sweet crude for December delivery declined US$2.20 to US$61.95 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since May 2007. And the same pattern was seen in Asia and Europe earlier in the day.

On Friday the Organization of Petroleum Exporting Countries (OPEC) tried to push the market back up with its announcement of a production cut of 1.5 million barrel-a-day.

But investors are so far not responding. And oil appears nowhere close to its record US$147.27 set just a few months ago on July 11. Since then prices have plunged 57 per cent.

"The mood is fairly negative reflecting worry about the international economic outlook," said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. "If there is further weak economic data in the U.S. or Europe, prices could come under more downward pressure."

"I thought the OPEC cut was a fairly decisive act, but concerns of recession in the major economies remain dominant," Moore said. "OPEC's cut does take a step toward tightening the market."

A research report in Vienna confirms that. “Oil is currently being driven by the present financial and not by OPEC cuts,” the report said, adding that because of “credit squeeze and a lack of liquidity, they (investors) may stay largely detached from supply factors for several weeks to come. As a result, OPEC is currently struggling with factors beyond its control."

The global financial crisis is going to last a while, experts say, and this is an ominous sign for nations that are dependent on revenues from oil and gas.

Trinidad and Tobago falls in that category. The opposition has been clamouring for the Manning administration to adjust its expectations and trim spending. But the government is not responding.