Crude Oil Drops Below $78 as Equities Slump on Credit Freeze

By Mark Shenk
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Oct. 10 (Bloomberg) -- Crude oil fell below $78 for the first time in a year and copper capped its biggest weekly drop in more than two decades on concern that the deepening financial crisis will push the global economy into a recession.

Oil in New York dropped 17 percent this week, the biggest one-week decline since March 2003 when a U.S.-led coalition invaded Iraq. All commodities with the exception of coffee are down on signs that demand for raw materials will drop as the global economy falters.

``No matter where you look, there is bleeding everywhere,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``I don't know where the bottom is. It's clear that we are headed for a painful couple of years.''

Crude oil for November delivery fell $8.89, or 10 percent, to $77.70 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the lowest settlement since Sept. 10, 2007. Prices have dropped 47 percent from the record $147.27 a barrel reached on July 11.

Gasoline for November delivery declined 22.03 cents, or 11 percent, to $1.807 a gallon in New York, the lowest settlement since Feb. 26, 2007. Heating oil dropped 20.86 cents, or 8.6 percent, to settle at $2.21 a gallon, the lowest close since Oct. 9, 2007. It was the biggest one-day drop in heating oil since Dec. 27, 2004.

More than $25 trillion has been erased from global equities in 2008. Central banks from London and Frankfurt to Washington and Hong Kong this week were forced to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.

`Moving on Emotion'

``This is a market that is moving on emotion, not the supply and demand picture,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``We are looking for a landing place, and I have no idea where it is.''

The Reuters/Jefferies CRB Index of 19 commodities had the biggest drop since at least 1956 today. The CRB fell 20.64 to 289.89, the lowest since Jan. 18, 2007. The index has slumped 39 percent from a record on July 3 and declined 20 percent in the past two weeks.



Copper futures for December delivery fell 26.15 cents, or 11 percent, to settle at $2.1445 a pound on the Comex division of the New York Mercantile Exchange. Copper dropped 20 percent this week, the most since 1988, when data begins.

The International Energy Agency, an adviser to 28 nations, cut its forecast for global oil demand next year by 0.5 percent as the worst financial crisis since the 1930s threatens a global recession.

Lower Demand

The IEA lowered its 2009 projection by 440,000 barrels a day to 87.2 million barrels a day, the Paris-based agency said today in its monthly report, citing a weaker economic outlook from the International Monetary Fund. Non-OPEC supply growth this year has been ``largely wiped out'' after hurricanes in the Gulf of Mexico and pipeline disruptions in Azerbaijan.

U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report on Oct. 8. The figure is down 8.6 percent from the year-earlier period.

``Oil is not a safe haven, because you have to use it,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Gold and putting money in your mattress look like the safest places to put your money.''

Oil companies followed energy futures lower. Exxon Mobil Corp. dropped 8.3 percent to $62.36 after touching $56.51, the lowest since Jan. 3, 2006. Chevron Corp. fell 9.6 percent to $57.83.

Energy Index

The Standard & Poor's Energy Index had the biggest weekly drop in at least 18 years. It was down 25 percent for the week. Among the worst performers were Chesapeake Energy Corp., which fell amid concern hedging contracts won't protect it against a plunge in natural-gas prices, and Tesoro Corp., the largest oil refiner in the U.S. West.

Brent crude oil for November settlement declined $8.57, or 10 percent, to settle at $74.09 a barrel on London's ICE Futures Europe exchange, the lowest settlement since Sept. 4, 2007. The contract dropped 18 percent this week, the biggest one-week decline since March 2003.

Prices may extend their decline next week, according to a Bloomberg News survey. Thirteen of 30 analysts surveyed by Bloomberg News, or 43 percent, said prices will decrease through Oct. 17.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.