Oil Falls Below $35 as Global Recession Reduces Fuel Demand

By Gavin Evans

Jan. 20 (Bloomberg) -- Crude oil fell below $35 a barrel in New York on speculation faltering global economic growth will drive down fuel consumption for a second year.

Slowing world demand, reduced tension in the Middle East and settlement of Russia’s gas dispute with Ukraine could push prices toward last month’s four-year low of $32.40 a barrel, Goldman Sachs Group Inc. said yesterday. OPEC may have to cut output again should prices fall further, Algerian Oil Minister Chakib Khelil said Jan. 17.

“We’re pretty close to the bottom if we’re not there already,” Michael Lynch, president of Strategic Energy & Economic Research Inc. in Winchester, Massachusetts, said in a Bloomberg Television interview. “I don’t think the market can sustain a price much below this.”

Crude oil for February traded at $34.54 a barrel, down 5.4 percent from last week’s close, in after-hours trading on the New York Mercantile Exchange at 8:54 a.m. Singapore time. The contract, which expires today, fell as low as $33.89 yesterday, when floor trading was closed for the Martin Luther King holiday. Yesterday’s trades will be booked today for settlement.

“There’s light trading volume and the economic numbers are bearish globally,” Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire, said yesterday. The February contract prices should be taken “with a grain of salt,” he said.

Oil Forecasts

The more-actively traded March contract was at $40.84, down 4.1 percent, after falling as low as $40.21 yesterday.

Near-term oil prices have been forced artificially low as the global financial crisis prompted fund managers to sell assets to generate cash, Strategic’s Lynch said. Prices need to rise and will probably reach $60 a barrel by year’s end, he said.

Brent crude oil for March settlement fell $2.07 or 4.4 percent, to $44.50 a barrel on London’s ICE Futures Europe exchange yesterday.

Stocks in Europe, Brazil and Canada fell yesterday as investors speculated government efforts to shore up the financial industry will fail to stem the deepening global recession.

The settlement of Russia’s natural gas dispute with Ukraine, and a cease-fire in the Gaza Strip had also increased selling pressure, Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois, said yesterday.

“There was a reduction of the geopolitical risk premium,” he said in a telephone interview.

Rising U.S. stockpiles and forecasts from the International Energy Agency and OPEC on declining world demand contributed to an 11 percent decline in Nymex crude last week. Prices are down 20 percent this year, after tumbling 54 percent in 2008.

Oil may make a “swift and violent rebound” to $65 a barrel in the second half as OPEC production cuts take effect and other producers also trim output, Goldman Sachs analyst Jeffrey Currie said at a conference in London yesterday.

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