Crude Oil Falls to 13-Month Low on Global Recession Concern

By Mark Shenk

Oct. 16 (Bloomberg) -- Crude oil fell to a 13-month low as plunging global stocks heightened doubts that bank bailouts will prevent a recession.

Oil, which has followed movements in equity markets this month, dropped below $72 a barrel as benchmark indexes in Asia and Europe slumped. The U.S. Energy Department will probably say today that oil and gasoline supplies rose last week, a Bloomberg News survey showed.

``The fate of energy demand is in the credit market,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Oil prices have been tracking the stock market, which should remain the case until there's more confidence about the economy.''

Crude oil for November delivery fell 81 cents, or 1.1 percent, to $73.73 a barrel at 9:22 a.m. on the New York Mercantile Exchange. Futures touched $71.21, the lowest since Aug. 28, 2007. Prices, which are down 16 percent from a year ago, have dropped 50 percent from the record $147.27 a barrel reached on July 11.

``Commodities have gone from a leading asset class to a follower in just two months,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ``Two months ago you would look at the oil market for a signal about the direction of other markets. Today you look at equities to get an idea where oil will go.''


Credit Suisse Group and Sanford C. Bernstein & Co. cut their 2009 oil-price forecasts in separate reports today. Bernstein lowered its 2009 crude oil price forecast to $70 a barrel from $90, while Zurich-based Credit Suisse reduced its next-year estimate by 32 percent to $75.

Fundamentals

``The moves of the market have nothing to do with fundamentals,'' Edmonds said. ``Fear about the economy, credit markets and that fuel demand will drop is what we are looking at. Until we get some certainty about the economy this will remain the case.''

The Energy Department supply report today will show that U.S. crude-oil inventories rose 2.6 million barrels, according to the median of analyst responses in the Bloomberg survey. The report will be released at 11 a.m. New York time, a day late because of the Columbus Day federal holiday Oct. 13 in the U.S.

Brent crude oil for November settlement declined $1.11, or 1.6 percent, to $69.69 a barrel on London's ICE Futures Europe exchange.

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