Oil Falls Below $50 for First Time in 22 Months on Demand Slump
By Grant Smith
Nov. 20 (Bloomberg) -- Crude oil fell below $50 a barrel in New York for the first time in almost two years as a recession in the U.S., Europe and Japan cut global energy demand.
Oil has crashed nearly $100 from its July record as the world economic crisis reduced global demand growth to its weakest in 23 years. Crude’s continuing slide will add to concern that the U.S. economy faces deflation and threaten investment in oil and gas production projects.
“Oil at $147 was purely a speculative bubble,” Gareth Lewis-Davies, an analyst at Dresdner Kleinwort Group Ltd., said before prices breached $50. “It was cheap money chasing opportunities that were evaporating in other asset classes. What would bring it down further is any indication of demand growth being weaker than already dampened expectations.”
Crude oil for December delivery fell as much as $3.71, or 6.9 percent, to $49.91 a barrel at 9:01 a.m. on the New York Mercantile Exchange. The contract last fell below $50 on Jan. 18, 2007.
The International Energy Agency, an advisor to 28 nations, said last week that world oil demand will rise at its slowest pace for 23 years in 2008. It cut its 2009 estimate by 670,000 barrels a day to 86.5 million barrels a day, the biggest reduction in 12 years.
New York oil futures first traded above $50 on Sept. 28, 2004, in the middle of oil’s six-year rally toward this year’s records. Prices climbed on the strength of oil import demand from emerging economies, led by China, the world’s second-largest oil consumer after the U.S.
Deflation Risk
U.S. consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, after being unchanged the prior month, the Labor Department said in Washington on Nov. 19. That increased concern the world’s largest economy risks a sustained period of falling prices, or deflation.
U.S. gasoline purchases declined for a 30th consecutive week last week, MasterCard Inc. said on Nov. 18. China cut diesel imports to the lowest in 14 months during September, the Customs General Administration said Nov. 17.
The IEA’s expectation that demand will expand next year remains more optimistic than several other analysts. Ian Taylor, chief executive officer of oil trader, Vitol Group said on Oct. 28 he expects a 1 million barrel decline in 2009, while Wood Mackenzie Consultants Ltd. predicts a drop of 250,000 barrels.
Prices may fall as low as $40 a barrel by April next year, Deutsche Bank AG said in a Nov. 19 report.
Cut Investment
The drop in oil prices may cut investment. As many as 44 projects being undertaken by companies including Saudi Aramco, Royal Dutch Shell Plc and Petroleo Brasileiro SA have been delayed or faced spending reduction, according to a Nov. 18 report by Morgan Stanley & Co.
The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s crude, has lost $700 billion in revenue because of falling prices, the British Broadcasting Corp. reported, citing Chakib Khelil, the group’s president.
The 13-member group, due to meet on Nov. 29 in Cairo and again on Dec. 17 in Algeria, is likely to lower output by a further 1 million barrels a day this year, extending production cuts agreed last month, according to a Bloomberg survey of analysts last week.
Oil’s decline has accelerated. October’s 33 percent drop was the biggest monthly reduction since at least 1988, as fuel demand has fallen.
Brent oil traded in London earlier dropped below $50. Brent for January settlement fell as much as $3.18, or 6.2 percent to $48.54, the lowest since May 2005, on London’s ICE Futures Europe exchange.
To contact the reporter on this story: Grant Smith in London at [email protected].
Last Updated: November 20, 2008 09:05 EST
By Grant Smith
Nov. 20 (Bloomberg) -- Crude oil fell below $50 a barrel in New York for the first time in almost two years as a recession in the U.S., Europe and Japan cut global energy demand.
Oil has crashed nearly $100 from its July record as the world economic crisis reduced global demand growth to its weakest in 23 years. Crude’s continuing slide will add to concern that the U.S. economy faces deflation and threaten investment in oil and gas production projects.
“Oil at $147 was purely a speculative bubble,” Gareth Lewis-Davies, an analyst at Dresdner Kleinwort Group Ltd., said before prices breached $50. “It was cheap money chasing opportunities that were evaporating in other asset classes. What would bring it down further is any indication of demand growth being weaker than already dampened expectations.”
Crude oil for December delivery fell as much as $3.71, or 6.9 percent, to $49.91 a barrel at 9:01 a.m. on the New York Mercantile Exchange. The contract last fell below $50 on Jan. 18, 2007.
The International Energy Agency, an advisor to 28 nations, said last week that world oil demand will rise at its slowest pace for 23 years in 2008. It cut its 2009 estimate by 670,000 barrels a day to 86.5 million barrels a day, the biggest reduction in 12 years.
New York oil futures first traded above $50 on Sept. 28, 2004, in the middle of oil’s six-year rally toward this year’s records. Prices climbed on the strength of oil import demand from emerging economies, led by China, the world’s second-largest oil consumer after the U.S.
Deflation Risk
U.S. consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, after being unchanged the prior month, the Labor Department said in Washington on Nov. 19. That increased concern the world’s largest economy risks a sustained period of falling prices, or deflation.
U.S. gasoline purchases declined for a 30th consecutive week last week, MasterCard Inc. said on Nov. 18. China cut diesel imports to the lowest in 14 months during September, the Customs General Administration said Nov. 17.
The IEA’s expectation that demand will expand next year remains more optimistic than several other analysts. Ian Taylor, chief executive officer of oil trader, Vitol Group said on Oct. 28 he expects a 1 million barrel decline in 2009, while Wood Mackenzie Consultants Ltd. predicts a drop of 250,000 barrels.
Prices may fall as low as $40 a barrel by April next year, Deutsche Bank AG said in a Nov. 19 report.
Cut Investment
The drop in oil prices may cut investment. As many as 44 projects being undertaken by companies including Saudi Aramco, Royal Dutch Shell Plc and Petroleo Brasileiro SA have been delayed or faced spending reduction, according to a Nov. 18 report by Morgan Stanley & Co.
The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s crude, has lost $700 billion in revenue because of falling prices, the British Broadcasting Corp. reported, citing Chakib Khelil, the group’s president.
The 13-member group, due to meet on Nov. 29 in Cairo and again on Dec. 17 in Algeria, is likely to lower output by a further 1 million barrels a day this year, extending production cuts agreed last month, according to a Bloomberg survey of analysts last week.
Oil’s decline has accelerated. October’s 33 percent drop was the biggest monthly reduction since at least 1988, as fuel demand has fallen.
Brent oil traded in London earlier dropped below $50. Brent for January settlement fell as much as $3.18, or 6.2 percent to $48.54, the lowest since May 2005, on London’s ICE Futures Europe exchange.
To contact the reporter on this story: Grant Smith in London at [email protected].
Last Updated: November 20, 2008 09:05 EST
