Crude Oil Falls as Demand Decline Outweighs OPEC Output Cuts

By Christian Schmollinger

Dec. 12 (Bloomberg) -- Crude oil fell in New York on speculation that declining fuel demand because of the global economic recession will outweigh cutbacks in output by OPEC.

Crude pared yesterday’s 10 percent gain, which came after Saudi Arabian Oil Minister Ali Al-Naimi said the kingdom had delivered the reductions promised to the producer group. Initial jobless claims in the U.S., the world’s biggest energy consumer, surged more than forecast last week to a 26-year high.

“If you look at the overall big picture, the demand collapse is still the overriding issue,” said Tony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “What producers can do is break the momentum of the fall but getting this thing back up is going to be tough.”

Crude oil for January delivery fell as much as $1.24, or 2.6 percent, to $46.74 a barrel in electronic trading on the New York Mercantile Exchange. It was at $46.92 a barrel at 9:28 a.m. Singapore time. Oil has jumped 15 percent this week, the biggest weekly gain since January 2000.

Yesterday, futures rose $4.46 to $47.98 a barrel, the highest settlement since Dec. 1. It was the largest gain since Nov. 4.

The Paris-based IEA, an adviser to 28 nations, said global oil demand will contract this year for the first time since 1983 and reduced its outlook for 2009.

Consumption worldwide will shrink 200,000 barrels a day, or 0.2 percent, in 2008, the IEA said in a monthly report yesterday. Next year’s growth may be wiped out if the economic slump deepens, the agency said.

OPEC Meeting

Saudi Arabia’s oil production was “absolutely” in line with its Organization of Petroleum Exporting Countries’ quota, al-Naimi said yesterday in an interview in Poznan, Poland, where he was attending climate-protection talks. He declined to comment further on OPEC policy.

Al-Naimi said the kingdom pumped 8.493 million barrels of oil a day in November, close to its OPEC production quota of 8.477 million barrels a day. That’s 287,000 barrels a day less than estimated by the International Energy Agency.

OPEC is set to meet on Dec. 17 in Algeria to discuss further cuts in production. The group agreed to slash output by 1.5 million barrels a day on Oct. 24.

Brent crude oil for January settlement gained $4.99, or 12 percent, to settle at $47.39 a barrel yesterday on London’s ICE Futures Europe exchange, the biggest one-day gain since March 1998.

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