Oil: Price tumbles below US$59

Oil fell US$2 on Monday to under US$59 as investors put money into other commodities and waited for signs Opec members would adhere to their pledge to cut crude supply.

US light crude CLc1 was down US$2.02 at US$58.73 a barrel by 1811 GMT. Brent crude LCOc1 fell US$2.14 to US$58.94 a barrel.

It will be some time before output cuts by members of the Organisation of the Petroleum Exporting Countries have any impact on high crude stocks in the world's largest consumer, the United States.

Shipments take weeks to arrive in the United States from the Gulf.

"We have a bit of a wait-and-see approach here until there is an appreciable change in fundamentals," said Harry Tchilinguirian of BNP Paribas.

"Opec cuts will hit the market at the end of November and early December when refiners come out of maintenance, then we'll see how it affects their runs."

Until then, speculators see potential for more gains elsewhere, said Olivier Jakob of Petromatrix.

"Large speculative funds remain more focused on other commodities where the fundamentals are clearer," Jakob said in a report. "Over the next 10 days we believe we can drift again towards lower values of the range US$57-US$64."

Zinc futures touched a record high on the London Metal Exchange (LME) on Monday and led base metals higher. Strong demand from rapidly growing China and India is fueling the rise on metals.

On oil markets some investors have questioned whether Opec members will fully adhere to their agreement to cut 1.2 million barrels per day (bpd) from supply from Nov. 1.

To date, Opec's largest exporter, Saudi Arabia, and the UAE are the only countries to have informed customers of supply cuts. Even though Nigeria has also told customers to load less, its total exports have remained steady.

Refiners who buy crude from other big Opec producers such as Kuwait and Libya say they have yet to receive notification of the new curbs.

In addition, preliminary data for October showed a small rise in Opec output.

The group's October production was 30.18 million bpd, up from 30.15 in September, consultant Petrologistics said on Friday, despite pledges that month from Nigeria and Venezuela to voluntarily cut back.

"We've had some fund selling, the market is still in a bearish frame of mind," said Rob Laughlin, broker at Man Financial. "The jury is out on how much Opec will be able to manage their cuts. Some members are leading the way, but the market needs more."

EARLY WINTER

Oil rose last week as US crude stocks fell sharply, chilly winter weather kicked in and concern rose about supply security from Saudi Arabia. The price has risen more than US$2 from its 2006 low of US$56.55 on Oct. 20.

Colder weather in the US Northeast, the world's largest heating oil market, has lent prices some support. Forecaster Meteorlogix predicted temperatures would be below normal for several days from Thursday onward.

Most projections have called for a normal to colder-than-usual winter. The cold may put heating oil stocks under pressure, but for now stocks remain well above year-ago levels.

Last week inventory data showed robust demand growth in the United States, although there is some concern about the potential effect on oil demand of a slowdown in the US economy.

"You probably won't see much change in US oil demand during a slowdown," said BNP's Tchilinguirian. "But if the slowdown affects the trade balances of emerging economies, that's where we might see a slowdown in oil demand."

Figures out on Monday showed China's implied oil demand rose only 3 per cent in September from a year ago, the slowest pace since a contraction in January.

- REUTERS