Oil drops below $40 after more grim economic news
Published 12:00 am Tuesday, December 1, 2009
VIENNA (AP) ó Oil prices slipped Tuesday, with benchmark crude trading just below $40 a barrel after grim U.S. economic news weighed on the market overnight.
The downward trend matched expectations of new downward pressure as traders look to indicators, such as the stock market’s performance, for signs of the depth of the global recession.
Light, sweet crude for March delivery fell 13 cents to $39.95 a barrel by midafternoon in Europe in electronic trading on the New York Mercantile Exchange. It had settled at $40.08 overnight on a reported drop in personal consumption and total construction spending in the U.S.
Uncertainty about the details of America’s $819 billion stimulus proposal, still up for debate in the U.S. Senate, also sidelined investors.
Oil prices have fallen about 72 percent since peaking at $147.27 a barrel in mid July as a financial crisis in the U.S. sub-prime mortgage sector mushroomed into the worst world economic slowdown in decades.
“I think the world is underestimating the power of this recession,” said Christoffer Moltke-Leth, head of sales trading for Saxo Capital in Singapore. “It’s still unfolding. It could be really, really ugly.”
Moltke-Leth said he expects oil to fall to as low as $28 a barrel by the end of March.
In the latest such news, the Commerce Department reported Monday that personal consumption spending fell 1 percent in December, a sixth consecutive drop. Total construction spending dropped 1.4 percent in December, worse than the 1.2 percent decline economists expected.
Retailer Macy’s Inc. was the latest company to announce mass layoffs, saying Monday it would slash 7,000 jobs, or 4 percent of its work force, less than a month after announcing it would close 11 stores.
Recent comments from OPEC leaders that the group may cut production soon may have helped stem a steeper price slide. The Organization of Petroleum Exporting Countries has pledged to reduce output by 4.2 million barrels since September, and Moltke-Leth spoke of “a lot of chatter from OPEC about having to cut further.”
“I don’t see it happening,” he said. “They need the cash, so it’s hard for OPEC to credibly talk the market higher.”
Crude inventories in the U.S. have soared as drivers cut back on spending. A report Tuesday by the American Petroleum Institute, the industry’s trade association, is expected to show that oil stocks rose 2.9 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
U.S. Energy Department’s Energy Information Administration reports its inventory data on Wednesday.
The data is expected to show that U.S. crude inventories rose by 2.5 million barrels in the week ending January 30, according to a Thomson Reuters poll of analysts.
Oil stocks have grown more than 20 million barrels in the last four weeks, evidence the U.S.’s worst recession for more than 25 years may be deepening as consumer demand dries up.
Crude supply may further increase as Iraq has extended its registration deadline for bidding on 11 new gas and oil fields.
Iraqi officials say they want to add about 4.5 million barrels a day to the current 2.4 million barrels per day capacity over the next four to six years.
Iraq has at least 115 billion barrels in reserves.
In other Nymex trading, gasoline futures dropped 1 cent to $1.14 a gallon, while heating oil remained steady at $1.34 a gallon. Natural gas for February delivery gained 3 cents to $4.59 per 1,000 cubic feet.
In London, the March Brent contract rose 38 cents to $44.20 on the ICE Futures exchange.
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Associated Press writer Alex Kennedy in Singapore contributed to this report.