By Gavin Evans and Christian Schmollinger
Feb. 17 (Bloomberg) -- Crude oil fell below $37 a barrel in New York on speculation a deepening recession in Europe and Asia will stifle demand for fuels.
Brent crude, a benchmark for European, Africa and Russian grades, slumped to a three-week low yesterday after U.K. bank stocks dropped and the Bank of England said the economy’s first quarter contraction may match last quarter’s 1.5 percent decline. Japan, the world’s third-largest oil consumer, yesterday said its economy shrank the most since 1974 in the fourth quarter.
“The market data from the U.S. and the other major economies is not painting a picture of an imminent recovery,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “The Japanese data was pretty bad.”
Crude oil for March delivery traded at $36.75 a barrel, down 76 cents from the Feb. 13 close, in electronic trading on the New York Mercantile Exchange at 12:47 p.m. in Singapore. Floor trading was closed for the Presidents’ Day holiday in the U.S. and yesterday’s transactions will be booked today for settlement.
The March Nymex oil contract expires on Feb. 20. The more actively traded April contract was at $41.30 today, down 67 cents from last week’s close.
The price of oil for delivery in April is $4.42 a barrel higher than for March, the so-called prompt month contract, after reaching as much as $8.19 a barrel on Feb. 12. This structure, in which the future month’s price is higher than the one before it, is known as contango, allowing buyers to profit from hoarding oil.
‘Crude Untradeable’
“By now it should be clear to everyone out there that spot Nymex crude is untradeable,” said Stephen Schork, president of the Schork Group Inc. in a report today. “What we have witnessed over the last month in the Nymex March-April market is not reasonable and it is not reflective of underlying fundamentals.”
The build in supplies at Cushing, Oklahoma, where West Texas Intermediate, the U.S. benchmark grade, is stored, has contributed to the contango. Inventories there climbed 1.7 percent to 34.9 million barrels last week, the Energy Department said on Feb. 11. It was the highest since at least April 2004, when the department began keeping records for the location.
Brent crude for April settlement rose 62 cents, or 1.4 percent, to $43.90 a barrel on London’s ICE Futures Europe exchange at 12:47 p.m. Singapore time. It slumped 3.4 percent yesterday as the U.K.’s FTSE 100 Index fell to a two-week low, led by Lloyds Bank Plc.
Falling Demand
Consumer prices in the U.S. probably posted their first annual decline since 1955 and new home construction fell further in January, economists said before reports this week.
The U.K. economy will probably shrink 3.3 percent in 2009, up from the 1.7 percent decline predicted in November, the Confederation of British Industry said yesterday. The nation is headed for its worst recession in almost 30 years.
World oil demand may not rebound until 2010, when it may begin rising by about 1 percent a year through 2013, International Energy Agency Executive Director Nobuo Tanaka said in London yesterday.
Production cuts by the Organization of Petroleum Exporting Countries and cold weather are helping rebalance the oil market, bringing the low point for prices closer than previously expected, Goldman Sachs Group Inc. analysts said yesterday.
“As a result, the bottoming in prices and time spreads could be closer than we originally expected,” Goldman analysts including Giovanni Serio and Jeffrey Currie said in a report.
New York crude oil fell to $32.40 a barrel on Dec. 19, the lowest for the front-month contract since February 2004.
To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net.
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