Oil Falls as Japan Recession Signals Slow Demand, Supply Gains

By Gavin Evans

Nov. 17 (Bloomberg) -- Crude oil fell for a second day in New York as figures showed Japan's economy entered a recession for the first time since 2001, a further signal of weakening global energy demand and increasing stockpiles.

Gross domestic product fell an annualized 0.1 percent in the three months ended Sept. 30 after shrinking 3.7 percent in the previous period, Japan's Cabinet Office said today in Tokyo. A report today in the U.S., the world's largest oil user, may show industrial production rose from a three-year low last month as increased oil output along the Gulf of Mexico coast offset a decline in manufacturing.

``There doesn't seem to be much out there to stop the fall in prices,'' said Toby Hassall, research analyst at Commodity Warrants Pty in Sydney. ``Weak demand and a pretty bleak demand outlook'' could push oil prices as low as $50 this week, he said.

Crude oil for December delivery dropped as much as $1.44, or 2.5 percent, to $55.60 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $55.73 at 8:20 a.m. in Singapore.

The contract slumped 2.1 percent to settle at $57.04 on Nov. 14, having touched $54.67 the previous day, the lowest since Jan. 30, 2007. Prices declined 6.6 percent last week as world equity markets dropped, Germany entered its worst recession in 12 years and U.S. retail sales fell for a fourth straight month.

Economists had predicted the economy in Japan, the world's third-largest oil consumer, would rebound 0.1 percent in the September quarter.

IEA Cuts Forecast

The International Energy Agency last week slashed its global oil consumption forecast for 2009 by 670,000 barrels a day. Demand will rise 0.4 percent to 86.5 million barrels a day, with growth in emerging nations offsetting a 1.6 percent contraction in fuel use in developed economies, the Paris-based agency said.

Brent crude oil for January settlement fell 76 cents, or 1.4 percent, to $53.48 a barrel on London's ICE Futures Europe exchange. The contract fell 3.6 percent to $54.24 a barrel on Nov. 14.

OPEC is likely to wait until December before cutting output again, the group's president, Chakib Khelil, said in Algeria yesterday.

Saudi Arabia, the world's biggest oil producer and the largest member in OPEC, will help alleviate global financial stress by maintaining stable oil markets, King Abdullah said after a meeting of Group of 20 leaders in Washington Nov. 15.

`Compliance Issue'

Iran, OPEC's second-largest producer, may seek a production cut of as much as 1.5 million barrels a day when the group meets in Cairo later this month, the Associated Press reported Nov. 15, citing televised comments by the nation's OPEC Governor Mohammad Ali Khatibi.

The group, which pumps about 40 percent of the world's oil, cut output by 1.5 million barrels a day last month. It will have more information on which to make a decision on further cuts at the Dec. 17 meeting in Oran, Algeria, Khelil said yesterday.

``We have yet to see the full cut from the previous meeting implemented at this stage,'' Commodity Warrants' Hassall said. ``Compliance is always going to be an issue.''

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net