Oil Falls to 17-Month Low as Recession Concern Intensifies

By Mark Shenk

Oct. 27 (Bloomberg) -- Crude oil fell to a 17-month low in New York as plunging stock markets heightened concern that a global recession will slash fuel consumption.

Oil, copper and gold led a drop in commodities, heading for the worst month in at least 38 years, on signs raw-material demand will decline. OPEC may make an additional output cut if its Oct. 24 decision to lower production fails to bolster prices, said Mohammad Ali Khatibi, Iran's representative to the group, according to the country's state-run Mehr news agency.

``Everyone is watching stock-market tickers and not OPEC,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``We want to see the full effect of the recession on demand and until that happens prices will trend lower.''

Crude oil for December delivery fell 86 cents, or 1.3 percent, to $63.29 a barrel at 9:57 a.m. on the New York Mercantile Exchange. Futures touched $61.30, the lowest since May 9, 2007. Prices, which have tumbled 57 percent since reaching a record $147.27 on July 11, are down 31 percent from a year ago.

``With all of the stock markets going down, there's going to continue to be downward pressure,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``There's not a lot that can be done to stop this downward spiral right now.''

The S&P GSCI index of 24 raw materials fell 1.1 percent, extending its retreat this month to 32 percent, the most since at least 1970.

OPEC Cut

Oil is heading for a 37 percent drop this month, the steepest since at least 1988 in New York, as the Organization of Petroleum Exporting Countries cut oil production for the first time in almost two years. The 13 OPEC nations agreed to reduce supply by 1.5 million barrels a day starting in November.

The OPEC price basket, an average of 11 crude-oil grades sold by the group, dropped to $57.57 a barrel on Oct. 24, the lowest since March 21, 2007.

The decline in the basket price ``increases the likelihood that they will be forced to cut production again,'' said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut. ``They now have to worry about their economic health because a vast majority of their income comes from oil.''

Global oil demand may fall for the first time in 15 years in 2008 and stagnate next year, the Centre for Global Energy Studies said Oct. 20. OPEC, the International Energy Agency and the U.S. Energy Department all cut their forecasts for growth earlier this month.

Brent crude oil for December settlement declined $1.03, or 1.7 percent, to $61.02 a barrel on London's ICE Futures Europe exchange. Futures touched $59.02, the lowest since Feb. 22, 2007.

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