RIYADH, Nov 8: What a month it has been for crude markets. With oil falling by a record 32.6 per cent in October alone, many oil related myths seemed to be exploding. This was the largest monthly drop since New York Mercantile Exchange (Nymex) future crude contracts began on March 30, 1983.

Crude prices had closed at $100.64 a barrel on the last trading day in September, while even after a late surge in Nymex, often termed end of the session correction, prices hit the low of $67.81 for December delivery, after earlier in the day falling to as low as $63.12. It’s quite a decline and shows how weak the demand picture really is.

The previous record price decline occurred in Feb 1986, when crude oil slipped 30 per cent to $13.26 a barrel.

A slew of negative economic reports aggravated fears that demand for fuel in the United States, the world’s largest oil consumer, was slipping, and dragging the oil markets to rapid lows. The most devastating blow for crude oil today was the data showing that U.S. manufacturing activity in October fell to the lowest level in 26 years, indicating real worries for oil demand.

The US is the world’s largest crude consumer in the world and when its economy was reported to be shrinking at an annual rate of 0.3 per cent in September, after stagnating in August, it was bound to generate alarm bells. In fact, the decline was the largest in four years and only the fifth quarter in more than 17 years that the US GDP did not rise. It marked the worst showing for the world’s largest economy since it contracted 1.4 per cent in the third quarter of 2001.

And there were other signs of concern, too. According to the Department of Energy, Americans are driving 5.6 per cent fewer miles this year than last. In August Americans drove 15 billion fewer miles than they had in the same month the previous year, the largest single-month decline since World War II.

“The outlook for demand remains weak while we wait for economic rescue measures to feed their way through the system, “Christopher Bellew, senior broker at Bache Commodities in London, was quoted as saying last week. “Even in emerging markets the growth is likely to be lower than was previously expected.”

It was apparently in this perspective that Venezuela’s Oil Minister Rafael Ramirez says Opec will need to cut production by at least another one million barrels per day to boost falling prices.

Iran, which reportedly slashed its oil output by 199,000 barrels a day following the Oct 24 Opec decision to reduce overall supply by 1.5 million barrels, says further cuts may be in the pipeline.

Iranian Oil Minister Gholam Hossein Nozari, has been openly insisting and arguing that the Organisation of Petroleum Exporting Countries may consider a further cut in production if the international markets do not react positively to the recent decision (of output cut).

The pressure to do ‘more’ seems growing. However, with the clamour to cut output further seems growing within the Opec, it remains to be seen, if the cartel could adhere to its output restrain regimen. Opinion, however, remains mixed if Opec members will follow through on the cuts religiously - or keep churning out as much crude as they can on fears that prices will plummet more.

Some Opec members are known to be notorious on this count. Hence putting a floor to this free fall seems difficult at this stage, some argue. “A further fall in the oil price cannot be ruled out. It is difficult to predict where the bottom could be,” said David Moore, commodity strategist with Commonwealth Bank of Australia in Sydney.

“An important factor over the next few months will be whether Opec can achieve its output cuts.” If it can, that will certainly tighten market conditions, everyone agrees.

Crude markets are in a flux. No one really knows where it would bottom out. The producers are in a fix.

While there still seems some pressure on them, the chorus for slashing the output is also growing from within.

Saudi Arabia has the largest reserves and is regarded as the ‘patient’ one - the country with the longest view. They indeed have an interest in a moderate oil price. And even when Opec sets quotas, due to various reasons, not every player in the organisation always respects them.

A lot of discipline within Opec is must to handle this emerging scenario. Can the Opec show its mettle and cross this hurdle too - a billion dollar question indeed. Only time has an answer.