Crude Oil Falls as Demand Concern Outweighs Possible OPEC Cut

By Mark Shenk

Oct. 10 (Bloomberg) -- Crude oil fell for a third day, slumping as much as 2.2 percent because concern that fuel demand will drop if a global recession develops outweighed signs that OPEC may curb output.

Prices touched an 11-month low yesterday as the Dow Jones Industrial Average fell below 9,000 for the first time since 2003 on signs the credit crisis will spread. The Organization of Petroleum Exporting Countries said yesterday it will hold an emergency meeting on Nov. 18 to tackle the drop in prices.

``The main driver of the oil market is the continuing credit crisis that's driving equities lower,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``Until we get evidence of a turnaround in the U.S. economy, there's going to be downward pressure on oil.''

Crude oil for November delivery fell as much as $1.93 to $84.66 a barrel and was at $84.91 at 9:10 a.m. Sydney time on the New York Mercantile Exchange. Futures have fallen 42 percent since reaching a record $147.27 a barrel on July 11.

Yesterday, oil fell $2.36, or 2.7 percent, to settle at $86.59 a barrel, the lowest settlement price since Oct. 23, 2007. Futures touched $84.19, the lowest intraday price since Oct. 15, 2007, in after-hours electronic transactions after the close of Nymex floor trading, as U.S. stocks plummeted.

The U.S., which consumes 24 percent of the world's oil, is now in a recession, according to a Bloomberg News survey of economists. The economy will shrink at a 0.2 percent annual pace in the third quarter and 0.8 percent in the last three months of 2008, according to the median estimate of 52 economists surveyed Oct. 3 to Oct. 8.

`Very Likely'

OPEC is ``very likely'' to cut oil production at the Nov. 18 meeting in Vienna because prices have fallen ``dramatically,'' the group's president, Chakib Khelil, said yesterday.

The group, which is responsible for more than 40 percent of global oil output, had been scheduled to meet next on Dec. 17 in Oran, Algeria.

``The organization is concerned about the deteriorating economic conditions with contagion risks,'' OPEC's Vienna-based secretariat said in an e-mailed statement yesterday. The group will ``discuss the global financial crisis, the world economic situation and the impacts on the oil market.''

OPEC resolved at its most recent meeting in Vienna last month to stick more closely to official quotas, implying a cut of about 500,000 barrels a day.

Output Cut `Suicide'

``Some OPEC members would like to cut production, but I think it would be suicide,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``I don't think they will make a cut unless things improve dramatically on the economic front.''

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 Oct. 8. The figure is down 8.6 percent from the year-earlier period, the department said.

``In July and August the drop in demand was due to high prices,'' Ritterbusch said. ``Now, the rapidly weakening economy is driving demand lower.''

Supplies of gasoline rose 7.18 million barrels, or 4 percent, to 186.8 million barrels as refinery output climbed 8.7 percentage points to 80.9 percent, the report showed. It was the biggest increase in refinery utilization since records began in 1989. Gasoline stockpiles climbed the most in seven years.

Brent crude oil for November settlement declined $1.70, or 2 percent, to settle at $82.66 a barrel on London's ICE Futures Europe exchange yesterday. It was the lowest settlement price since Oct. 12, 2007.

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