By Grant Smith and Alexander Kwiatkowski
Jan. 15 (Bloomberg) -- Oil fell in New York after OPEC said demand for its crude will fall 4.2 percent this year as the deepening recession reduces spending on fuels.
Global consumption of OPEC’s crude will shrink 1.4 million barrels a day to 29.5 million barrels a day, according to a monthly report released today. U.S. fuel demand fell the most in five years as crumbling economic confidence reined in consumer spending.
“The economic news which is predominating the market is invariably bad,” said Gareth Lewis-Davies, an analyst at Dresdner Kleinwort Group Ltd. in London. “We’re at the point where the night is darkest just before the dawn.”
Crude oil for February slid 2 percent to $36.53 a barrel on the New York Mercantile Exchange as of 1:20 p.m. London time. It earlier fell as much as 3.1 percent to $36.13. Yesterday, futures dropped 1.3 percent to $37.28 a barrel in New York, the lowest settlement since Dec. 24. Oil has declined 60 percent in the past year.
Brent crude oil for February settlement advanced $1.64, or 3.6 percent, to $46.72 a barrel on London’s ICE Futures Europe exchange. The contract, which expires today, is more than $9 higher than crude traded in New York because of excessive U.S. supplies. The more-active March Brent contract gained $1.01 to $48.63 a barrel.
There will be a “major contraction” in demand among members of the Organization for Economic Cooperation and Development, with the United States being the “main contributor,” to this reduction, the OPEC report said.
U.S. inventories of crude soared to a 16-month high as fuel demand tumbled 6 percent, the Energy Department said yesterday. European equity markets fell for a seventh day after the Standard & Poor’s 500 Index slid the most in six weeks yesterday on concern that company profits are deteriorating.
Inventories Grow
U.S. crude stockpiles increased 1.14 million barrels to 326.6 million last week, the highest since Aug. 31, 2007. Gasoline and distillate fuel supplies also rose. Fuel demand fell 6 percent, the largest one-week decline in almost five years, as the Federal Reserve reported the U.S. economy weakened further in the past month.
“The concern now is that falls in demand are greater than the reduction in supply,” Lewis-Davies said.
Saudi Arabia said this week it may cut output more than was announced at OPEC’s last meeting in December. Venezuelan President Hugo Chavez said yesterday the Organization of Petroleum Exporting Countries is “willing to cut 2 million more, 4 million more barrels to preserve the price of oil.”
Inventories at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 2.5 percent to 33 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location.
‘Killer’
The price of oil for delivery in February 2010 is 58 percent more than for the front-month contract, allowing traders to profit if they can store crude. February 2009 crude is trading at a $7.14 discount to March, from $3.88 on Jan. 5.
“High stocks in Cushing were the killer for the oil price,” said Dresdner’s Lewis-Davies.
Gasoline stockpiles rose 2.07 million barrels to 213.5 million barrels, higher than the 1.85 million-barrel increase forecast in the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, surged 6.35 million barrels to 144.2 million barrels, the biggest gain since January 2004.
“Signs of a collapse in diesel demand, mirroring the plunge in international trade, container traffic at U.S. port, U.S. trucking demand and industrial activity, is undermining heating oil prices despite frigid winter temperatures on the East Coast,” said Antoine Halff, head of energy research at Newedge USA LLC in a report yesterday.
Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the choking-off of credit led Americans to cut back on everything from eating out to car purchases. The 2.7 percent decrease, the sixth consecutive drop, extended the longest series of declines in records going back to 1992, the Commerce Department said yesterday in Washington.
The U.S. economy weakened across almost all regions, hurt by a lack of credit and declines in retail sales, the Federal Reserve said yesterday in its regional business survey.
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net
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