Oil: Prices slump nearly $2, dealers shrug Opec cut

Oil prices fell nearly $2 on Friday as dealers took profits on a widely expected move by the Opec cartel to curb production in excess of its official 27 million barrels per day output ceiling.

"People bought the rumor about Opec cutting production, and now they're selling the news," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

US light crude futures settled down $1.82, or 4.3 per cent, to $40.71 a barrel after hitting a fresh four-month low of $40.25. London's Brent crude fell $2.29 to $37.38 a barrel.

A resumption of oil flows through Iraq's northern pipeline to the Turkish port of Ceyhan after a 12-day halt encouraged selling. Shippers said the flows of Kirkuk crude resumed at about 450,000 bpd.

"Much of the Opec action had been priced in, coming into today's trading, and the news about Iraq resuming pumping crude to Ceyhan also kept bulls in check here," said a NYMEX broker.

Opec ministers meeting in Cairo Friday said they would implement a cut to output of just over 1 million bpd on Jan. 1 to bring production in line with the group's official limits. The ministers also decided to meet again on Jan. 30 to discuss whether further cuts were needed.

The Organisation of the Petroleum Exporting Countries, which controls about 40 per cent of the world's oil, has been producing at its highest level in 25 years to meet rising demand in China and fuel strong world economic growth.

Excess supply above formal cartel quota limits has swelled crude inventories to about 5 per cent above year-ago levels in the United States, the world's largest consumer.

"Markets appear to want to test Opec's apparent resolve to defend prices at $33 for the basket (of Opec crudes). And promises to cut out 'over-production' may not deter them," said Jan Stuart of brokers Fimat.

Crude prices are still up about 30 per cent for the year, but a fall in the dollar's value has eroded Opec's purchasing power from non-dollar economies.

Consumer nations have urged Opec not to curb supplies, saying oil stocks need to rebuild to calm volatile prices and underpin economic growth.

Forecasts for a bout of arctic weather in the United States next week may ramp up demand for winter heating oil and test thin stockpile levels.

US distillate stocks are running 13 per cent below year-ago levels, according to government data this week.

- REUTERS