Oil Little Changed After Falling on Signs Recession May Deepen

By Christian Schmollinger

Dec. 9 (Bloomberg) -- Crude oil was little changed in New York after falling 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, the Cabinet Office said today. Exports from China, the second-biggest crude consumer, probably shrank last month and 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, so that’s why oil isn’t done from a downside risk point of view.”

Crude oil for January delivery was at $44.05 a barrel, up 34 cents, in after-hours electronic trading on the New York Mercantile Exchange at 3:38 p.m. Singapore time. The contract pared earlier gains of as much as 1 percent, dropping to $43.40 a barrel.

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.

“Things are not so good,” said People’s Bank of China adviser Fan Gang at a forum in Beijing. “November figures will come out soon, and industrial growth will be something around 5 percent and export growth will be negative.”

Export Collapse

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.

“If you look at the jobs cuts announcements we are certainly not out of woods with the downturn,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore.

Brent crude oil for January settlement fell as much as 40 cents, or 0.9 percent, to $43.02 a barrel on London’s ICE Futures Europe exchange. It was at $43.15 a barrel at 3:11 p.m. Singapore time. The contract yesterday rose $3.68, or 9.3 percent, to settle at $43.42 a barrel.

Saudi Overproduction

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.