Crude Oil Falls on Forecast Global Growth to Cut Fuel Demand

By Gavin Evans

Jan. 19 (Bloomberg) -- Crude oil fell in New York on forecast faltering global economic growth will drive down fuel demand for a second year.

A report this week in the U.S., the world’s largest oil consumer, will probably show housing starts last month fell to the lowest annual rate since at least 1959, according to a Bloomberg News survey of economists. Global oil demand will shrink 0.6 percent to 85.3 million barrels a day this year, the first two-year decline since 1983, the International Energy Agency said Jan. 16.

“The near-term economic news and data are going to remain extremely weak and that’s just going to continue to test sentiment in energy and metals markets,” David Moore, commodity strategist at Commonwealth Bank of Australia Ltd., said by phone from Sydney today.

Crude oil for February delivery fell as much as 60 cents, or 1.6 percent, to $35.91 a barrel in after-hours electronic trading on the New York Mercantile Exchange, and traded at $36.22 at 9:47 a.m. in Singapore. There will be no floor trading in New York today because of the Martin Luther King Day holiday.

The contract, which expires tomorrow, rose 3.1 percent to $36.51 on Jan. 16 as investors who had expected further declines in February crude bought oil back to limit losses ahead of today’s holiday. Oil fell 11 percent last week as U.S. stockpiles rose and OPEC forecast a decline in demand.

The more-actively traded March contract dropped 27 cents to $42.30. It fell 2.2 percent to $42.57 on Jan. 16.

Crude futures have fallen 19 percent this year, after tumbling 54 percent in 2008.

‘Out of Synch’

Brent crude oil for March settlement fell as much as 62 cents, or 1.3 percent, to $45.95 a barrel. The contract dropped 2.3 percent on London’s ICE Futures Europe exchange on Jan. 16.

The Nymex February contract “is out of sync with the rest of the world, not just Brent,” Commonwealth’s Moore said.

The margin between the Nymex February and March contracts was at $5.95, having reached $8.14 at the Jan. 15 settlement. The spread between the January and February contracts reached a record $8.49 on Dec. 19. Oil for June delivery settled at $51.35 last week.

The steep rise in near-term prices is encouraging investors to buy and store oil, boosting inventories. That, coupled with weak economic data and the lag before production cuts by the Organization of Petroleum Exporting Countries are felt, may put March prices under the same selling pressure, Moore said.

OPEC produces about 40 percent of the world’s oil. The group agreed to cut output by 9 percent starting this month to prevent a glut and stem a six-month decline in prices.

Saudi Arabia, China

Saudi Arabia, the group’s biggest producer, last week said it will reduce output further in February. Ministers should agree fresh cuts at the group’s March 15 meeting if prices continue to slide, Algerian Oil Minister Chakib Khelil said on Jan. 17.

The IEA’s latest forecast assumes global economic growth of 1.2 percent in 2009, half its previous estimate. It lowered projected daily demand in industrial nations by 530,000 barrels and consumption in developing nations by 480,000, including a 300,000 barrel-a-day reduction in China.

A report last week showed industrial production in Europe in November was down 7.7 percent from a year earlier with new orders also “incredibly low,” Commonwealth’s Moore said. Data due from China, the world’s second-largest oil user, will likely be the most significant news for the market this week, he said.

“If there’s evidence the Chinese economy is continuing to weaken, that would be extremely negative news for commodity markets,” he said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net