Crude Oil Futures Decline on Signs That Recession May Deepen

By Christian Schmollinger

Dec. 9 (Bloomberg) -- Crude oil fell in New York on signs the global recession may be deeper than anticipated, limiting demand for fuels.

The economy in Japan, the world’s largest oil importer, contracted 1.8 percent in the third quarter, more than the government originally estimated. Exports from China, the second- biggest crude consumer, probably shrank last month as industrial output declined, said an adviser to the People’s Bank of China.

“Oil is very much a proxy commodity for economic growth, and those numbers continue to fall,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “People are looking at weaker GDP numbers or weaker industrial production data, and you can apply that straight through to the energy market as well”

Crude oil for January delivery dropped as much as 41 cents, or 0.9 percent, to $43.30 a barrel in electronic trading on the New York Mercantile Exchange. It traded for $43.47 at 8:46 a.m. London time.

Prices have fallen 70 percent since reaching a record $147.27 a barrel on July 11 as the recession deepens.

A collapse from China’s 19.2 percent export growth in October would add pressure on policymakers meeting in Beijing this week to do more to sustain the expansion of the world’s fourth-biggest economy. The government has already unveiled a 4 trillion yuan ($582 billion) stimulus package and cut interest rates by the most in 11 years.

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

Brent crude oil for January settlement fell as much as 42 cents, or 1 percent, to $43 a barrel on London’s ICE Futures Europe exchange. It was at $43.14 a barrel at 8:23 a.m. London time.

The Organization of Petroleum Producing Countries should make a “substantial” output cut when it meets in Algeria on Dec. 17, Libya’s top oil official, Shokri Ghanem, said yesterday. OPEC, which pumps more than 40 percent of the world’s oil, agreed 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 ANZ’s Pervan. “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: Christian Schmollinger in Singapore at christian.s@bloomberg.net.