Oil below $40 nears 4-yr low on demand gloom
Friday, 19 December 2008
SINGAPORE, Dec 18: Oil traded at four-year lows below 40 dollars Thursday, despite OPEC's pledge of a record output cut, while demand remained weak and the IMF called for moves to boost the slowing global economy, report agencies.
Even the greenback's sharp fall against the yen and the euro was unable to boost crude prices after the oil cartel agreed Wednesday to reduce production by 2.2 million barrels a day.
As the yen soared to a 13-year high against the dollar, the Bank of Japan began a two-day policy meeting Thursday and speculation grew that it may follow the United States in cutting interest rates to almost zero.
In afternoon trade New York's main futures contract, light sweet crude for delivery in January, was down 41 cents to 39.65 dollars a barrel, off a low of 39.19 dollars.
The contract closed at 40.06 dollars a barrel on Wednesday on the New York Mercantile Exchange, a decline of 3.54 dollars.
Brent crude oil for February delivery was down 38 cents to 45.15 dollars a barrel, off a low of 45.08, after falling 1.12 dollars to close at 45.53 Wednesday in London.
Ministers of the 13-member Organisation of Petroleum Exporting Countries, meeting in Algeria, agreed to the reduction in a bid to shore up prices that have slumped because of falling demand in a slowing global economy since hitting record highs above 147 dollars in July.
Analysts questioned whether the latest cuts would be sufficient while some of the world's leading industrialised oil consumers -- the United States, Germany and Japan -- are already in recession.
Others including China are experiencing sharp growth slowdowns.
"Countries other than the Saudis are going to have difficulty to comply with this cut. Those oil producing countries, if they want to survive, they have to produce, even at $40 oil," said Tetsu Emori, fund manager at Astmax Co Ltd in Japan.
According to independent observers cited in OPEC's monthly report on Tuesday, the group's compliance in November to existing cuts was only just over 50 percent.
"Prices have to head lower, now that we are through $40. As long as demand continues to weaken, prices will weaken too," Emori added.
A prolonged period of cheap prices could slow new investment, crimping supply, a stark turnaround just months after worries that high prices were eating into demand.
Oil below $50 is uncomfortable for all producing nations, but especially for OPEC members Venezuela and Iran, which are dependent on higher prices to fund ambitious domestic programmes.
Traders also took their cue from US crude oil and refined fuel stocks, which rose last week as imports of oil products increased, while domestic refiners curbed output rates in the light of soft demand.
Even the greenback's sharp fall against the yen and the euro was unable to boost crude prices after the oil cartel agreed Wednesday to reduce production by 2.2 million barrels a day.
As the yen soared to a 13-year high against the dollar, the Bank of Japan began a two-day policy meeting Thursday and speculation grew that it may follow the United States in cutting interest rates to almost zero.
In afternoon trade New York's main futures contract, light sweet crude for delivery in January, was down 41 cents to 39.65 dollars a barrel, off a low of 39.19 dollars.
The contract closed at 40.06 dollars a barrel on Wednesday on the New York Mercantile Exchange, a decline of 3.54 dollars.
Brent crude oil for February delivery was down 38 cents to 45.15 dollars a barrel, off a low of 45.08, after falling 1.12 dollars to close at 45.53 Wednesday in London.
Ministers of the 13-member Organisation of Petroleum Exporting Countries, meeting in Algeria, agreed to the reduction in a bid to shore up prices that have slumped because of falling demand in a slowing global economy since hitting record highs above 147 dollars in July.
Analysts questioned whether the latest cuts would be sufficient while some of the world's leading industrialised oil consumers -- the United States, Germany and Japan -- are already in recession.
Others including China are experiencing sharp growth slowdowns.
"Countries other than the Saudis are going to have difficulty to comply with this cut. Those oil producing countries, if they want to survive, they have to produce, even at $40 oil," said Tetsu Emori, fund manager at Astmax Co Ltd in Japan.
According to independent observers cited in OPEC's monthly report on Tuesday, the group's compliance in November to existing cuts was only just over 50 percent.
"Prices have to head lower, now that we are through $40. As long as demand continues to weaken, prices will weaken too," Emori added.
A prolonged period of cheap prices could slow new investment, crimping supply, a stark turnaround just months after worries that high prices were eating into demand.
Oil below $50 is uncomfortable for all producing nations, but especially for OPEC members Venezuela and Iran, which are dependent on higher prices to fund ambitious domestic programmes.
Traders also took their cue from US crude oil and refined fuel stocks, which rose last week as imports of oil products increased, while domestic refiners curbed output rates in the light of soft demand.