Oil heading for biggest weekly drop since 1991
Published Saturday December 6th, 2008
NEW YORK - Crude oil fell for a sixth day, heading for the biggest weekly drop since the Persian Gulf War in 1991, on concern demand will decline after a report showed U.S. employers cut jobs in November at the fastest pace since 1974.
Oil is down 25 per cent since Nov. 28 as the recession deepened in the U.S., Europe and Japan. Payrolls fell by 533,000 last month, the Labor Department said Friday. The International Energy Agency, U.S. Energy Department and OPEC lowered demand forecasts over the past month because of the contraction.
"After the jobless number, any bulls that were left in the market will become extinct," said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. "There are no redeeming features in these numbers."
Crude oil for January delivery fell $2.62, or six per cent, to $41.05 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures touched $40.50, the lowest since Dec. 13, 2004. Prices have dropped 72 percent since reaching a record $147.27 on July 11.
"The $40 level will act as a magnet that we should break through in the next day or two," said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. "Prices may consolidate there for a week before going down further. It looks like we will continue to fall to levels that looked impossible five months ago."
The U.S. entered a recession in December 2007, the National Bureau of Economic Research, a non-profit panel of economists that dates American business cycles, said this week. U.S. equity markets declined Thursday as oil stocks dropped on forecasts of $25-a-barrel crude from analysts at Merrill Lynch & Co.
The U.S., European Union and Japan, which are in the first simultaneous recession since World War II, consumed 48 per cent of the world's oil in 2007, according to BP Plc, which publishes its BP Annual Statistical Review of World Energy each June.
The International Energy Agency cut its global oil-demand outlook for 2009 because of the world economic slowdown.
The Paris-based agency reduced its forecast by 170,000 barrels a day from its November estimate to 86.37 million barrels a day, David Martin, an International Energy Agency analyst, said in a phone interview Friday as the agency issued an update to its July Medium-Term Oil Market report.
U.S. fuel demand during the four weeks ended Nov. 28 was down 6.2 per cent from a year earlier, an Energy Department report showed Dec. 3.
Copper and corn tumbled along with oil, sending the Reuters/Jefferies CRB Index of 19 raw materials down as much as 3.6 per cent Friday to 210.1, the lowest since Aug. 8, 2002. The gauge lost 56 per cent since reaching a record in July, as the credit crunch choked worldwide growth.
Brent crude oil for January settlement fell $2.17, or 5.1 per cent, to $40.11 a barrel on London's ICE Futures Europe exchange. Futures touched $39.35, the lowest since Jan. 4, 2005.
Falling prices may lead the Organization of Petroleum Exporting Countries to reduce production.
Qatar's oil minister said this week OPEC will "definitely" cut output at its next meeting in Algeria on Dec. 17. Abdullah bin Hamad al-Attiyah said he doesn't know by how much the group, which is responsible for more than 40 percent of global supply, will cut at the meeting.
OPEC oil ministers agreed on Oct. 24 in Vienna that the 11 members with quotas would lower supply by 1.5 million barrels a day starting in November. Production by the 11, excluding Iraq and Indonesia, declined 725,000 barrels to 28.24 million barrels a day last month, according to data compiled by Bloomberg News.
"OPEC is going to have to show much better compliance," Ritterbusch said. "They must feel somewhat dejected that the cut that was thrown at the market has had almost no impact. Although they aren't powerless, they can do very little to support prices until there is a semblance that demand is leveling."
Gasoline for January delivery declined 6.1 cents, or 6.3 per cent, to 90.85 cents a gallon in New York. Prices touched 89.5 cents, the lowest since the contract for reformulated gasoline was introduced in October 2005.
Pump prices have followed futures lower. Regular gasoline, averaged nationwide, dropped 1.6 cents to $1.773 a gallon, AAA, the largest U.S. motorist organization, said on its website Friday. It's the lowest since January 2005. The fuel has fallen 57 per cent from the record $4.114 a gallon reached on July 17.
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