Oil falls to near $53 as US demand outlook worsens
Oil prices fell to near $53 a barrel in Asia as dismal US economic data and rising crude inventories outweighed the possibility of production cuts by OPEC and Russia.business Updated: Nov 27, 2008 10:12 IST
Oil prices fell to near $53 a barrel on Thursday in Asia as dismal US economic data and rising crude inventories outweighed the possibility of production cuts by OPEC and Russia. Light, sweet crude for January delivery was down $1.18 to $53.26 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.
Prices have hovered just above three-year lows this week as bad economic news painted a bleak picture of US demand for crude. The Commerce Department on Wednesday said orders to US factories for big-ticket manufactured goods plunged in October by the largest amount in two years. The 6.2 percent drop was more than double the 3 percent decline economists expected. The department also said Americans cut their spending in October by the largest amount since the 2001 terrorist attacks. Consumer spending plunged by 1 percent last month, worse than the 0.9 percent decline that had been expected.
The fall in consumer spending has shown up in rising oil and gasoline inventories. For the week ended Nov. 21, crude stocks jumped by 7.3 million barrels, the Energy Department's Energy Information Administration said in a weekly report on Wednesday. Analysts had expected a boost of only 400,000 barrels. Gasoline inventories rose by 1.9 million barrels. Analysts expected stockpiles to rise by only 300,000 barrels "It looks like $50 is a support level," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. "But when it gets up to $54, people take profits. No one wants to get too bullish."
Prices have fluctuated between about $50 and $54 a barrel this week as investors grapple with the impact the global economic slowdown will have on crude demand.
The contract overnight rose $3.67 to settle at $54.44 on expectations China's biggest interest rate cut in 11 years _ and the fourth in three months _ will boost growth and demand for oil in the world's second-largest economy.
"People are still confused about the overall global economic situation," Rigby said. "Traders were looking for supportive news, so they looked to the China rate cuts."
"But for the next few months, everyone is going to be worried about the US economy since it's still the largest in the world." Expectations of a production cut by the Organization of Petroleum Exporting Countries has helped support prices. OPEC, which accounts for 40 percent of global supply, will hold an informal meeting Saturday in Cairo and an official meeting Dec. 17 in Algeria. Some OPEC members, such as Venezuela, have called for the group to reduce output quotas by 1 million barrels a day at the Cairo meeting, while OPEC President Chakib Khelil has said the organization needs more time to evaluate the effect of previous production cuts.
The group cut output by 1.5 million barrels a day last month. "I wouldn't be surprised if they announce a cut this Saturday," Rigby said. "Anything they can do to get prices back up, they will. It will have to be between 500,000 and 1 million to get the traders interested."
Investors will also be eyeing Russia to see if the oil exporter joins OPEC in cutting output. Russian Energy Minister Sergei Shmatko said this week his county will support any production cut OPEC makes.
"They may talk about it, but I'd be surprised if they actually did it," Rigby said. "Russia wants all the benefits of what OPEC does to boost prices, but I don't know if they really want to cut their production and their revenue."
In other Nymex trading, gasoline futures fell 0.39 cent to $1.18 a gallon. Heating oil dropped 2.24 cents to $1.71 a gallon while natural gas for January delivery slid 17.2 cents to $6.71 per 1,000 cubic feet.
In London, December Brent crude rose $1.02 to $52.90 on the ICE Futures exchange.