Crude Oil Declines as Concerns Increase on Depth of Recession

By Grant Smith

Jan. 8 (Bloomberg) -- Crude oil fell for a third day as falling equity markets and consumer confidence intensified concerns that the global recession will lessen energy demand.

Oil dropped more than 4 percent as U.S. stock index futures declined along with stocks in Europe and Asia. European confidence in the economic outlook fell to the lowest on record, the European Commission in Brussels said today, and unemployment in the region rose to a two-year high.

“We’re seeing some risk aversion kick into the oil market as equities suffer, and the focus shifts back to the slowing economy,” said Andrey Kryuchenkov, an analyst with VTB Capital in London.

Crude oil for February delivery traded fell $1.76, or 4.1 percent, to $40.87 a barrel in electronic trading on the New York Mercantile Exchange, trading for $40.98 as of 1:38 p.m. London time. In London, Brent futures fell 98 cents to $44.88.

Yesterday, futures dropped $5.95 to $42.63 a barrel, the lowest settlement since Dec. 30. That was the biggest percentage decline since Sept. 24, 2001.

Crude earlier rose as much as 2.4 percent to $43.63 as rocket attacks on Israel launched from Lebanon spurred concerns that the widening conflict in Gaza will disrupt Middle East supplies, and as Venezuela and Angola signaled compliance with OPEC production cuts agreed on last month.

Futures on the Standard & Poor’s 500 Index slipped 1 percent. In the U.K., the benchmark FTSE 100 Index sank 85.59, or 1.9 percent, to 4,421.92 even after the Bank of England today cut borrowing costs to the lowest in its three-century history.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net