Crude oil fell below $38 a barrel for the first time since July 2004 on speculation the drop in demand because of the weakening economy will outpace Opec supply cuts.
Oil declined as much as 5.9 per cent after the index of leading US economic indicators fell in November for the fifth time in seven months. The US Energy Department said consumption will be lower in 2009 because of the contraction. The Organization of Petroleum Exporting Countries agreed to reduce production by 2.46 million barrels a day at a meeting on Thursday.
“With all the doom and gloom about the economy, I see nothing to stop the receding tide of oil prices,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. “The next important support I am looking at is $35, and after that, $30.”
Crude oil for January delivery dropped $1.29, or 3.2 percent, to $38.77 a barrel at 12:16 pm on the New York Mercantile Exchange. Futures touched $37.68, the lowest since July 1, 2004. Prices have tumbled 74 per cent from a record $147.27 on July 11.
The January contract expires on Friday. The more-active February contract fell $1.60, or 3.6 per cent, to $43.01 a barrel.
“The supply of crude coupled with declining demand is putting a lot of pressure on the front months,” McGillian said.
JPMorgan Chase & Co, the largest US bank by assets, reduced its 2009 average oil price forecast to $43 a barrel from $69 as a global economic slowdown causes a contraction in demand. The prospect of oil falling to $25 is “hard to dismiss amid a serious deterioration of economic conditions and building stocks,” the bank said in a report released on Wednesday.
‘Spare Capacity’: “When you look at the spare capacity that is being created, even if prices do start to pick up, you will see more leakage of supply onto the market,” Lawrence Eagles, global head of commodities research at JPMorgan Chase in New York, said in a conference call on Thursday.
Norway, the fifth-biggest oil exporter, according to the country’s Ministry of Petroleum and Energy, won’t follow Opec’s decision to cut output, Stein Hernes, a spokesman for the Petroleum and Energy Ministry, said in an e-mailed response to questions on Thursday.
Opec has called on other exporters to help it bolster prices. Non-Opec members Russia and Azerbaijan signaled yesterday that they may be willing to trim supplies to help the group.
“Even though Opec announced a substantial cut yesterday, the market doesn’t seem to have any confidence in their ability to manipulate the market,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “Even if they make the promised cuts, it will be a long time before we see evidence of it here.”
Floating Storage: Oil companies have booked 25 supertankers to store crude, enough to supply France for almost a month. The vessels, equal to about 5 per cent of the global fleet, can carry as much as 50 million barrels.
“The market is failing to find any support,” Bentz said. “The worries about demand are still out there because of the recession. We’ve got at least 45 million barrels of excess floating storage out there on top of all the storage we’ve got on land.”
