Crude Oil Falls on Signs of Further Contraction in U.S. Economy

By Christian Schmollinger

Dec. 2 (Bloomberg) -- Crude oil fell to the lowest in three years in New York on signs that the economy in the U.S., the world’s largest energy consumer, is in a more severe economic downturn than expected.

The U.S. first entered a recession in December 2007, the panel of economists that dates American business cycles said yesterday. The country’s manufacturing output in November also contracted at the fastest pace in 26 years, a report showed. Oil also declined after OPEC deferred a decision to cut supplies until a Dec. 17 meeting.

“What we’re seeing right now is a once-in-a-generation type of economic collapse,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. “There is general agreement that the market has a bottom in the $40s so it’s difficult to get really short but at the same time there is no reason for this market to rally.”

Crude oil for January delivery dropped as much as 73 cents, or 1.5 percent, to $48.55 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $48.61 at 9:16 a.m. in Singapore. The contract fell $5.15, or 9.5 percent, to $49.28 a barrel yesterday, the lowest settlement since May 23, 2005.

Oil prices have tumbled 67 percent since reaching a record $147.27 on July 11 as the U.S., Europe and Japan face their first simultaneous recession since World War II.

Crude led a collapse in all commodity prices. Gold tumbled the most in eight months, dropping 5.2 percent to $776.80 an ounce yesterday. Futures were at $777.10 an ounce at 8:56 a.m. Singapore time on the Comex division of the New York Mercantile Exchange. Silver futures fell more than 8 percent yesterday. Sugar, wheat, platinum and palladium also declined.

December Recession

The declaration on the U.S. recession was made by the National Bureau of Economic Research, a private, non-profit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to the agency.

The Institute for Supply Management’s factory index dropped to 36.2, the lowest level since 1982, the Tempe, Arizona-based group reported. A reading of 50 is the dividing line between expansion and contraction.

Ministers from the Organization of Petroleum Exporting Countries put off debate on a second cut in output in as many months during the Nov. 29 meeting in Cairo. The group will reduce crude production when it meets in Oran, Algeria, this month, OPEC Secretary General Abdalla el-Badri said. Oil demand is likely to drop further next year, he said.

“For sure there will be action” at the meeting, el-Badri told reporters in Tehran yesterday, declining to specify the amount of output that may be curbed.

‘Perfect Storm’

“It was a bit of a perfect storm yesterday,” said Hudson Capital’s Kornafel. “There was a good amount of premium built into the market going into the weekend on the belief that OPEC would cut. Then you started to see that premium bleed out in Asia time. Once the Western markets opened you saw a lot of bad economic data.”

U.S. crude-oil inventories probably rose for a 10th week as imports rebounded, a Bloomberg News survey of analysts showed.

Crude-oil stockpiles probably climbed 850,000 barrels in the week ended Nov. 28 from 320.8 million the week before, according to the median of six analyst estimates before an Energy Department report this week.

Refineries probably operated at 86.5 percent of capacity, up 0.3 percentage point from the week before, the survey showed.

Stockpiles Rise

Gasoline stockpiles probably increased 1.5 million barrels from 200.5 million the week before, according to the survey. Seven analysts gave product-supply estimates.

Supplies of distillate fuel, a category that includes heating oil and diesel, rose 1 million barrels from 126.7 million barrels the week before, according to the survey.

The Energy Department is scheduled to release its weekly report on Dec. 3 at 10:35 a.m. in Washington.

Brent crude oil for January settlement fell as much as 33 cents, or 0.7 percent, to $47.64 a barrel, on London’s ICE Futures Europe exchange. It was at $47.65 a barrel at 9:02 a.m. Singapore time. The contract yesterday declined $5.52, or 10 percent, to settle at $47.97 a barrel. It was the lowest settlement since May 19, 2005.

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