Oil Set for Biggest Weekly Drop Since 2004 as Commodities Slump

By Nesa Subrahmaniyan and Christian Schmollinger

Oct. 10 (Bloomberg) -- Crude oil tumbled more than $4 a barrel and headed for its biggest weekly decline since December 2004, pacing a slump in commodities on concern the deepening financial crisis will push the global economy into a recession.

Oil in New York fell to the lowest in a year and copper traded at its weakest since March 2006 after the Dow Jones Industrial Average dropped below 9,000 yesterday for the first time since 2003. Gold rose to the highest in nearly 11 weeks as investors sought the metal as a haven after Asian stocks tumbled.

``It doesn't look like anybody is putting money into commodities anymore except for gold,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore. ``You have to sell out what you have, and that's the disaster of this credit crisis. Healthy assets are being sold below value just like unhealthy assets.''

Crude oil for November delivery fell as much as $4.59, or 5.3 percent, to $82 a barrel on the New York Mercantile Exchange, and was at $82.35 at 2:55 p.m. in Singapore. Crude futures are down more than 12 percent this week, and have dropped 44 percent from a record $147.27 a barrel reached on July 11.

``It's worrying,'' said David Moore, the commodity strategist at Commonwealth Bank of Australia in Sydney. ``Equity markets are falling dramatically, the credit crisis is spreading and the outlook remains poor.''

Copper for three-month delivery fell as much as 9 percent to $4,830 a metric ton on the London Metal Exchange. The metal is headed for its biggest weekly plunge in more than two decades. Nickel, zinc and aluminum also fell.

BNP's Forecast

Gold for immediate delivery jumped as much as $14.65, or 1.6 percent, to $927.90 an ounce, the highest since July 29. The precious metal traded at $915.50 at 9:37 a.m. in Singapore. Silver for immediate delivery rose 0.8 percent at $12.20 an ounce.

The oil market ``is still searching for a bottom as the turmoil in financial markets, far from settling in the past month, moved up a notch with fallouts in the financial sector spreading to Europe,'' BNP Paribas SA, France's biggest bank, said in a report yesterday.

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.

Prices for West Texas Intermediate, the benchmark U.S. oil variety, may average $95.20 a barrel next year, down from an earlier forecast of $115.80, BNP Paribas said. It trimmed its 2008 forecast by 5.5 percent to $104.40, and its 2010 estimate by 11 percent to $105.60.

Slowing Economies

The economic slowdown in Organization for Economic Cooperation and Development countries ``is not only to be deeper than expected but more protracted,'' Harry Tchilinguirian, senior oil analyst at BNP Paribas, said in the report.

The OECD is made up of 30 countries including the U.S., the U.K., France, Germany and Japan.

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.

OPEC Output

The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world's oil, signaled yesterday it may cut output at an emergency meeting on Nov. 18.

OPEC is ``very likely'' to cut oil production at the meeting in Vienna because prices have fallen ``dramatically,'' the group's president, Chakib Khelil, said yesterday. The group had been scheduled to meet next on Dec. 17 in Oran, Algeria.

``OPEC can't fix the problem in the financial markets,'' said Toby Hassall, a research analyst with Commodity Warrants Australia in Sydney. ``They would be very cautious in making any huge cuts in output as they wouldn't want to slow down an already slowing world economy by cutting and push prices up.''

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.

``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.''

Brent crude oil for November settlement declined as much as $4.06, or 4.9 percent, to $78.60 a barrel on London's ICE Futures Europe exchange, and traded at $79.01 at 2:58 p.m. Singapore time. Prices have fallen 12 percent this week.

To contact the reporters on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net