Oil prices fell below $37 a barrel on Tuesday in Asia as a deepening global slowdown weighed on expectations for crude demand.
Light, sweet crude for March delivery fell 76 cents to $36.75 a barrel by midday in Singapore on the New York Mercantile Exchange after settling at $37.51 on Friday. The contract rose 11 cents on Monday in Asian and European trading while US markets were closed for the Presidents Day holiday.
Prices have fallen 75 per cent since peaking at $147.27 in July as a credit crisis in the US sub-prime mortgage sector has mushroomed into the worst global economic downturn in decades. So far this year, US companies have shed hundred of thousands of jobs, dragging down consumer confidence. US crude inventories have soared in recent weeks, reflecting a pull back in spending despite a drop in gasoline prices.
Japan, the world's second-biggest economy, is also hurting. It said on Monday its economy shrank 3.3 per cent in the fourth quarter from the previous quarter, the worst performance since 1974. "The economic and inventory data paint a bleak picture for oil demand," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore. "Since the beginning of the year, the outlook has worsened."
Supplies at the main US depot for Nymex crude in Cushing, Oklahoma have jumped over the last two months, straining storage space to its brink. Some oil traders are selling crude they would otherwise store, which helps to push the price down. "Given the storage situation in Cushing, it's not surprising to see selling pressure," Shum said. "When there's limited storage, you just want to sell it."
The front month March contract expires on Friday. OPEC's output cuts have helped keep prices from falling further. Leaders of the Organization of Petroleum Exporting Countries have said they may add to 4.2 million barrels a day of cuts announced since September at a meeting next month.
"If prices are in the $30s going into the next OPEC meeting, we may see further cuts," Shum said.
In other Nymex trading, gasoline futures rose 0.52 cents to $1.21 a gallon. Heating oil fell 3.0 cents to $1.37 a gallon, while natural gas for March delivery dropped 14.7 cents to $4.31 per 1,000 cubic feet.
In London, the March Brent contract rose 54 cents to $43.82 on the ICE Futures exchange.