By Grant Smith
Dec. 9 (Bloomberg) -- Crude oil declined amid signs the global recession may be deeper than anticipated, limiting demand for fuels.
The economy in Japan, the world’s second-largest oil importer, contracted 1.8 percent in the third quarter, more than the government originally estimated, the Cabinet Office said today. The Organization of Petroleum Exporting Countries, controller of 40 percent of global oil supplies, is due to meet in eight days.
“As the economic downturn persists, demand for oil deteriorates on what appears like a daily basis,” said Rob Laughlin, senior broker at MF Global Ltd. in London. “OPEC will have to make a significant cut next week.”
Crude oil for January delivery fell as much as 70 cents, 1.6 percent, to $43.01 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $43.05 at 1:34 p.m. London time.
Yesterday, futures gained $2.90, or 7.1 percent, to $43.71 a barrel. Prices have fallen 70 percent since reaching a record $147.27 a barrel on July 11 as the recession deepens.
Last week, oil had the biggest fall since 1991 and metal prices slumped after economic data showed the recession is getting worse. The U.S. economy lost 533,000 jobs in November, bringing job losses this year to 1.91 million.
Brent crude oil for January settlement fell as much as 82 cents, or 1.9 percent, to $42.60 a barrel on London’s ICE Futures Europe exchange. It was at $42.65 a barrel at 1:52 p.m. London time.
Saudi Overproduction
The Organization of Petroleum Exporting Countries should make a “substantial” output cut when it meets in Algeria on Dec. 17, Libya’s top oil official, Shokri Ghanem, said yesterday. OPECagreed to cut daily output 1.5 million barrels in October as prices slumped and inventories rose.
“The base case cut is 2 million barrels, but I don’t think it’s going to surprise anyone, so if they want to shock the market, then 3 million would have to be required,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “But that response may be short-lived because they’ll want to see some compliance.”
Saudi Arabia, the world’s largest crude oil exporter, is furthest from meeting OPEC quotas, helping to dull the impact of the cartel’s policy. The country is producing at 107 percent of its limit, according to Bloomberg estimates. That’s more than Kuwait, Iran, Venezuela or the United Arab Emirates.
Saudi Arabia has started to trim oil exports. State oil company Saudi Aramco will reduce shipments to Japanese refiners including Nippon Oil Corp., Idemitsu Kosan Co. and Cosmo Oil Co. by 7 to 10 percent in January from levels agreed under annual contracts, said officials at two refineries who received notices yesterday from the company.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
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