Crude Oil Falls as Asian Demand Declines on Deepening Recession

By Christian Schmollinger

Dec. 23 (Bloomberg) -- Crude oil fell for a second day in New York on speculation that a deepening global recession is reducing fuel demand in Asia, undermining OPEC's efforts to boost prices by cutting production.

Japan's crude imports and South Korean fuel demand dropped in November, and slumping Chinese growth prompted the nation's central bank yesterday to cut rates for the fifth time in three months. The Organization of Petroleum Exporting Countries is ``determined'' to stabilize oil markets, Saudi Arabian Oil Minister Ali al-Naimi said Dec. 21.

``Even if OPEC cuts, and it still stays bearish on demand, it will require further cutbacks in supply,'' said Mark Pervan at Australia & New Zealand Banking Group Ltd. in Melbourne. ``We've still got more weak demand data to come out and that will put more downside risk for price.''

Crude oil for February delivery fell as much as 86 cents, or 2.2 percent, to $39.05 a barrel. It was at $39.47 a barrel at 3:25 p.m. Singapore time on the New York Mercantile Exchange. Prices have dropped 73 percent from a record $147.27 on July 11.

January futures, which expired last week, plunged 6.5 percent to $33.87 a barrel on Dec. 19, the lowest settlement for a contract closest to expiration since Feb. 10, 2004. Oil has declined 27 percent in December and dropped 59 percent this year, snapping six years of gains.

U.S. supplies climbed in 11 of the past 12 weekly reports from the Energy Department as consumption dropped. Inventories probably rose 900,000 barrels last week, according to the median of analyst responses in a Bloomberg News survey. The department is scheduled to release its next report at 10:35 a.m. tomorrow in Washington.

Carmakers Cut

Carmakers are slashing output as auto sales slump. Toyota Motor Corp., the world's second-largest automaker, yesterday forecast its first operating loss in 71 years as demand for vehicles plummeted. Hyundai Motor Co., South Korea's largest automaker, and affiliate Kia Motors Corp. yesterday said they will reduce output in December.

``The problems that Toyota is having underlines the problems we're seeing in the world today,'' said Jonathan Kornafel, director for Asia at Hudson Capital Energy in Singapore. ``The drop in consumer spending is not just being felt in the U.S., it's being felt everywhere. And that's a big part of why crude oil is trading at $40.''

Mitsubishi Motors Corp. said today it will scrap night shifts at two domestic factories to reduce planned output by 110,000 vehicles in the year ending March because of tumbling sales in Japan, the U.S. and Europe.

Asian Imports

Japan's crude-oil imports plunged 17 percent to 3.71 million barrels a day last month, the country's finance ministry said yesterday. South Korea's oil demand declined 12 percent in November from a year earlier, Korea National Oil Corp. said.

Japan is the world's biggest oil importer after the U.S. and Germany, according to the U.S. Energy Department. South Korea is the fifth-biggest importer.

China lowered borrowing costs for the fifth time in three months yesterday after trade growth collapsed because of recessions in the U.S., Europe and Japan. The one-year lending rate will drop by 0.27 percentage point to 5.31 percent and the deposit rate by the same amount to 2.25 percent, the People's Bank of China said on its Web site.

Brent crude oil for February settlement fell 72 cents, or 1.7 percent, to $40.73 a barrel on London's ICE Futures Europe exchange. It was at $41.03 a barrel at 3:25 p.m. Singapore time. The contract yesterday declined $2.55, or 5.8 percent, to settle at $41.45 a barrel.

To contact the reporter on this story: Christian Schmollinger in Singapore at Christian.s@bloomberg.net