Oil prices fell toward $63 a barrel in Asia on Tuesday after more evidence of a US recession piled up and hopes China will prop demand continued to wane.
Light, sweet crude for December delivery fell 66 cents to $63.25 a barrel in electronic trading on the New York Mercantile Exchange by midmorning in Singapore. After rising above $69 per barrel in Asian trade on Monday, light, sweet crude for December delivery tumbled $3.87 to settle at $63.91 overnight.
Monday's rally in crude oil futures proved short-lived after US manufacturers reported lethargic activity numbers for October. The Institute for Supply Management said its manufacturing index fell to 38.9, the worst reading in more than a quarter century. Any reading below 50 signals contraction.
The manufacturing data along with weak US auto sales "poured cold water" on the oil market, said Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore.
"The overriding concern is the economy in the US," Shum said. "For 2008 there is unlikely to be any demand growth for oil and in 2009 there may be some modest growth but much less than we would have seen otherwise."
Adding to the gloomy outlook for the oil market, Credit Suisse cut its forecast for growth in China's oil demand next year to near zero from 4 percent on the back of lower economic growth forecasts. "The latest set of economic data out of China suggests a much more severe economic slowdown is under way there. Hopes of even a slightly decoupled China in 2009 are fading fast," the investment bank said in a report.
Oil industry analysts had believed that the booming economies of India and China would pick up any slackening of demand if Western nations went into recession. That view has weakened in recent months, as the economic crisis in the United States spread across the globe.
Shum said he expects oil to continue trading within its recent $60 to $70 band. Prices have tumbled since spiking to nearly $150 a barrel in July.
The recent output cut by the Organization of Petroleum Exporting Countries is likely to achieve a "fairly good level" of compliance from member nations, creating a floor for the oil price, he said. But a second cut at OPEC's next meeting in December seems unlikely and would be difficult to implement, Shum said. To keep prices from falling further, Venezuela's Oil Minister Rafael Ramirez has said OPEC, which controls about 40 percent of world crude oil production, will need to cut production by at least 1 million barrels daily on top of the already announced cut of 1.5 million barrels a day.
In other Nymex trading, gasoline futures fell 1.05 cents to $1.352 a gallon, adding to a steep fall overnight. Heating oil fell 1.78 cents to $1.965 a gallon while natural gas for December delivery rose 3.2 cents to fetch $6.87 per 1,000 cubic feet. In London, December Brent crude fell 79 cents to $59.69 on the ICE Futures exchange after plummeting $4.84 overnight.