Oil Little Changed After Falling to 3-Year Low on U.S. Slump

By Christian Schmollinger and Grant Smith

Dec. 2 (Bloomberg) -- Crude oil traded little changed after falling to the lowest in more than three years on signs the U.S., the world’s largest energy consumer, may be in the longest slump since World War II.

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 contracted at the fastest pace in 26 years, a report showed.

Oil for January delivery was at $48.31 a barrel, up 3 cents, on the New York Mercantile Exchange at 1:13 p.m. London time, after falling as much as $1.92, or 3.9 percent, to $47.36 in electronic trading. That’s the lowest since May 20, 2005.

“Demand is going down from week to week, hand-in-hand with the worldwide slowdown in economic growth,” said Gerrit Zambo, an oil trader at BayernLB in Munich. “If sentiment gets worse and equities move lower we could see oil go to $40.”

Oil prices have tumbled 68 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 is also under pressure after the United Arab Emirates’ state-owned producer said it would provide full contractual volumes to Asian refiners, indicating members of the Organization of Petroleum Exporting Countries may fail to fully comply with production cuts last month.

“All the poor economic news plus the lack of clear indication of full compliance on the part of OPEC, means a further downturn is possible,” said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore.

December Recession

Brent crude oil for January settlement fell as much as $1.95, or 4.1 percent, to $46.02 a barrel on London’s ICE Futures Europe exchange, the lowest intraday price since Feb. 18, 2005. It was at $47.85 a barrel at 1:05 p.m. London time.

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 longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933.

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.

OPEC Debate

OPEC ministers put off debate on a second cut in output in as many months during the Nov. 29 meeting in Cairo.

Abu Dhabi National Oil Co., the United Arab Emirates state- owned producer, will supply full crude shipments to its Asian customers in January, said four traders at refiners in Japan, South Korea and Singapore.

Abu Dhabi National, known as Adnoc, will supply contracted volumes of its Murban, Upper Zakum, Lower Zakum and Umm Shaif grades next month, said the traders, who asked to remain unidentified because of company policy. The U.A.E. was OPEC’s fourth-largest supplier in October.

OPEC 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.

Stockpiles May Rise

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.

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 tomorrow at 10:35 a.m. in Washington.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net. Grant Smith in London at gsmith52@bloomberg.net