Crude Oil Tumbles to Lowest Since May 2005 as Consumption Drops

By Nesa Subrahmaniyan

Nov. 21 (Bloomberg) -- Crude oil fell to the lowest since May 2005, trading almost $100 a barrel below its July record as demand drops amid a global recession.

Oil is poised to drop 15 percent this week, the worst performance since Oct. 10 as the world economic crisis reduced demand growth to its weakest in 23 years. Equity markets plunged and copper has declined to 63 percent from its May record to trade at its lowest since July 2005.

``It's all driven by fear while the logic suggests a serious slowdown in demand caused by a worsening global economic outlook,'' said Toby Hassall, analyst at Commodity Warrants Australia in Sydney. ``The equity market is a barometer of the economy, and the market is pricing in a serious slowdown.''

Crude oil for January delivery fell as much as 87 cents, or 1.8 percent, to $48.55 a barrel, and traded at $49.21 at 8:50 a.m. Singapore time on the New York Mercantile Exchange. Futures have dropped 67 percent since reaching a record $147.27 on July 11.

Oil for December delivery dropped $4.68, or 8.7 percent, yesterday to expire at $49.42 a barrel.

Japan's economy, the world's second-largest, will probably shrink this year and next in the first back-to-back contractions since the banking crisis a decade ago, economists say.

Singapore lowered its growth forecast for a fourth time this year and said the economy may contract in 2009, adding pressure on policymakers to implement more measures to avoid a prolonged slowdown.

Demand Slows

The International Energy Agency, an adviser to 28 nations, said last week that world oil demand will rise at its slowest pace for 23 years in 2008. It cut its 2009 estimate by 670,000 barrels a day to 86.5 million barrels a day, the biggest reduction in 12 years.

New York oil futures first traded above $50 on Sept. 28, 2004, in the middle of oil's six-year rally toward this year's records. Prices climbed on the strength of oil demand from emerging economies, led by China, the world's second-largest oil consumer after the U.S.

Brent crude oil for January settlement yesterday declined $3.64, or 7 percent, to $48.08 a barrel on London's ICE Futures Europe exchange, the lowest settlement since May 20, 2005.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.