Crude Oil Extends Slump to Sixth Day on Demand-Drop Concern

By Mark Shenk and Samantha Zee

Jan. 13 (Bloomberg) -- Crude oil fell for a sixth day in New York, extending yesterday’s 7.9 percent slump on concern OPEC output cuts won’t be enough to counter weaker demand.

Oil consumption will drop by 1 million barrels a day this year as the U.S., Europe and Japan face their first simultaneous recessions since the Second World War, Deutsche Bank AG said last week. OPEC members have signaled they will curb sales to refiners in February.

“The market will remain under pressure because almost all of the news about the economy is awful,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “It appears that OPEC is making a concerted effort to cut output but it’s unclear whether this will be enough.”

Crude oil for February delivery fell 40 cents, or 1.1 percent, to $37.19 a barrel at 8:24 a.m. Singapore time on the New York Mercantile Exchange

In New York yesterday, futures fell $3.24 to $37.59 a barrel, the lowest settlement since Dec. 24. Oil is down 59 percent from a year ago.

Goldman Sachs Group Inc. said that “weak underlying economic fundamentals” will dominate the oil market. The bank maintained a forecast in a Jan. 9 report that oil will fall to $30 a barrel this quarter.

High Inventories

Oil inventories in Organization for Economic Cooperation and Development nations will probably rise to a 10-year high in the next two months, Goldman analysts Giovanni Serio and Jeffrey Currie said in the report.

“The health of the global economy is the dominant consideration in the short term, and that is weighing down on prices,” said Harry Tchilinguirian, senior market analyst at BNP Paribas SA in London. “OPEC cuts may prove to be supportive in future but it’ll take time for them to take effect.”

The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s oil, agreed last month to slash production quotas by 9 percent to revive prices as the global recession erodes demand. Oil has plunged more than $100 a barrel in the past six months.

Saudi Arabian Oil Co., the world’s biggest state oil company, sent notices to refiners in Asia on Jan. 9 that it would lower crude supplies to the region by about 10 percent in February. This was the third straight month that the company reduced sales.

‘Strong Compliance’

“The numbers coming out of OPEC show that there is strong compliance,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “When the economy and demand start to turn during the second half of the year, we might be in for a nasty shock. There won’t be a lot of oil on hand because of the OPEC cuts.”

OPEC may trim production further should crude prices continue to decline, Iran’s OPEC governor, Mohammad Ali Khatabi, said Jan. 11. OPEC is scheduled to meet next in Vienna on March 15. Iran is the group’s second-largest producer, after Saudi Arabia.

“Something in the $30-to-$34 area is probably where we are going,” Charles Maxwell, senior energy analyst at Weeden & Co. in Greenwich, Connecticut, said in a Bloomberg television interview. “I think it’s not a sustainable price. We have a lot of pressures, including the OPEC cuts.”

Most commodities fell yesterday because of lower demand for raw materials. The Reuters/Jefferies CRB Index of 19 prices slid as much as 4 percent. Corn, soybeans and wheat fell the most allowed by the Chicago Board of Trade and gold slumped the most in six weeks.

U.S. Supplies

Brent crude oil for February settlement declined $1.51, or 3.4 percent, to settle at $42.91 a barrel on London’s ICE Futures Europe exchange yesterday.

U.S. crude-oil supplies rose 6.68 million barrels to 325.4 million barrels in the week ended Jan. 2, the highest since May, the Energy Department reported on Jan. 7. It was the 13th gain in 15 weeks.

Inventories at Cushing, Oklahoma, the delivery point for crude oil traded at Nymex, climbed to 32.2 million barrels, the highest since the Energy Department started tracking the supplies in 2004.

Gasoline futures for February delivery dropped 2.71 cents, or 2.4 percent, to settle at $1.0841 a gallon in New York yesterday. Heating oil for February fell 1.53 cents, or 1 percent, to end the session at $1.4724 a gallon.

Regular gasoline at the pump, averaged nationwide, declined 0.2 cent to $1.79 a gallon, AAA, the largest U.S. motorist organization, said on its Web site yesterday. Prices have dropped 56 percent from the record $4.114 a gallon reached on July 17.

Oil prices also fell on speculation that OAO Gazprom, Russia’s natural-gas exporter, will resume fuel shipments to Europe. The European Union said Russia and Ukraine signed a natural-gas monitoring deal that may pave the way for the resumption of flows as early as this morning.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.