Oil tumbles under $45 on weak economy

Updated: 2008-12-04

(China Daily) LONDON – Oil prices tumbled Wednesday under $45, hitting their lowest point since February 2005, as weak US economic data sparked renewed concern about slowing global energy demand.

The Lavan oil refinery quay, seen in 2004, in the Lavan island in Iran. Oil prices tumbled Wednesday under 45 dollars, hitting their lowest point since February 2005, as weak US economic data sparked renewed concern about slowing global energy demand. [Agencies]

On London's InterContinental Exchange, Brent North Sea crude for delivery in January slumped as low as 44.87 dollars a barrel .

New York light sweet crude for January fell to 46.26 dollars -- also its lowest level since February 2005 -- on the New York Mercantile Exchange.

The oil market sank as a dismal private US employment report stoked concerns about a darkening outlook in the recession-hit US economy, analysts said.

The US private sector lost 250,000 jobs in November, the largest decline in six years, according to the ADP National Employment Report on Wednesday.

"The macroeconomic backdrop to the oil market continues to worsen," said Barclays Capital analyst Paul Horsnell.

"We are now projecting that global (crude oil) demand will decline in both 2008 and 2009," he added.

Oil prices have now plunged by about 70 percent since striking record highs above 147 dollar in July as a spreading global economic slowdown weighs on demand.

It emerged Monday that the United States -- the world's biggest energy consumer -- is in a recession, following the eurozone, Japan and other economies.

"So far this week, economic data globally and global economic forecasts have been very gloomy and provide added ammunition ... for driving prices lower; especially given OPEC's failure to cut output at the weekend," said analyst Nimit Khamar at the Sucden brokerage in London.

However, prices rebounded somewhat later Wednesday as falling US crude inventories suggested still stronger-than-expected US demand.

In late afternoon trade, Brent oil stood at 45.72 dollars, up 30 cents from the close on Tuesday. New York crude also rose 30 cents to 47.26 dollars.

The US government's Department of Energy (DoE) said crude inventories fell by 400,000 barrels in the week ending November 28, confounding market expectations for a 1.4 million barrel increase.

The DoE said gasoline (petrol) stockpiles dropped 1.6 million barrels, in contrast to estimates for a gain of 1.6 million barrels.

US distillates, which include diesel and heating fuel, declined 1.7 million barrels, compared with market expectations for no change.

The oil market began the week sharply lower after OPEC decided at a weekend meeting against cutting production, preferring to wait until December before reducing exports.

The cartel's secretary general Abdalla Salem El-Badri said on Monday that OPEC would decide on a "major" output cut next month if the oil market were deemed to be deteriorating.

The Organization of Petroleum Exporting Countries (OPEC), which pumps 40 percent of the world's crude, met in Cairo on Saturday to assess the state of the market but held off from making any decision on cutting production.

Instead, energy ministers decided that any output move would be made when they next meet in Oran, Algeria on December 17.

OPEC has already slashed output twice this year by a total of two million barrels per day (bpd) in response to plunging prices but fears remain that a global recession will drain demand for energy.

The OPEC production cuts agreed in September and October failed to stop prices subsequently sliding under 50 dollars.