Crude Oil Falls to 1-Year Low as Economic Crisis Curbs Demand

As demand dropped and global stock markets plunged on concern a global credit crisis will push countries including the U.S. into a recession, crude oil fell to its lowest in a year and copper prices also declined.

Oil was at the lowest since October 2007 and copper traded at its weakest since March 2006 after the Dow Jones Industrial Average yesterday dropped below 9,000 for the first time since 2003. OPEC, supplier of about 40 percent of the world's oil, signaled yesterday it may cut output at an emergency meeting on Nov. 18.

“It's worrying. Equity markets are falling dramatically, the credit crisis is spreading and the outlook remains poor,” said David Moore, the commodity strategist at Commonwealth Bank of Australia in Sydney. “OPEC has to be cautious and may only make moderate cuts as they won't want to be seen as exacerbating any economic slowdown.”

Crude oil for November delivery fell as much as $4.49, or 5.2 percent, to $82.10 a barrel on the New York Mercantile Exchange. Futures were at $82.30 at 10:29 a.m. Singapore time. Futures have fallen 44 percent from a record $147.27 a barrel reached on July 11.

Yesterday, oil fell $2.36, or 2.7 percent, to settle at $86.59 a barrel, the lowest settlement since Oct. 23, 2007.

Copper for three-month delivery fell as much as 9 percent to $4,830 a metric ton on the London Metal Exchange, the lowest intra-day level since March 2006. The contract traded at $4,880 a ton at 9:32 a.m. in Shanghai.

Gold jumped to the highest in nearly 11 weeks as investors sought bullion as a haven after Asian stocks tumbled on the heel of plunging U.S. equities amid a deepening credit crisis and worsening global economic outlook.

Bullion for immediate delivery jumped as much as $14.65, or 1.6 percent, to $927.90 an ounce, the highest since July 29. It traded at $915.50 at 9:37 a.m. in Singapore. Silver for immediate delivery rose 0.8 percent at $12.20 an ounce.

The oil market ``is still searching for a bottom as the turmoil in financial markets, far from settling in the past month, moved up a notch with fallouts in the financial sector spreading to Europe,'' BNP Paribas SA, France's biggest bank, said in a report.

U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report on Oct. 8. The figure is down 8.6 percent from the year-earlier period.

BNP Paribas SA yesterday cut its forecast for 2009 U.S. oil prices by 18 percent, citing a downgrade to its economic outlook.

Prices for West Texas Intermediate, the benchmark U.S. oil variety, may average $104.40 a barrel next year, down from an earlier forecast of $110.50, BNP Paribas said in an Oct. 9 report. It trimmed its 2008 forecast by 5.5 percent to $95.20, and its 2010 estimate by 11 percent to $105.60.

BNP Paribas cut its forecast for 2009 U.S. economic growth to a decline of 0.1 percent from a gain of 1.5 percent.

The economic downturn in Organization for Economic Cooperation and Development countries “is not only to be deeper than expected but more protracted,” Harry Tchilinguirian, senior oil analyst at BNP Paribas, said in the report.

The OECD is made up of 30 countries committed to democracy and market economics, including the U.S., the U.K., France, Germany and Japan.

The U.S., which consumes 24 percent of the world's oil, is now in a recession, according to a Bloomberg News survey of economists. The economy will shrink at a 0.2 percent annual pace in the third quarter and 0.8 percent in the last three months of 2008, according to the median estimate of 52 economists surveyed Oct. 3 to Oct. 8.

OPEC is “very likely” to cut oil production at the Nov. 18 meeting in Vienna because prices have fallen ``dramatically,'' the group's president, Chakib Khelil, said yesterday.

The group, which is responsible for more than 40 percent of global oil output, had been scheduled to meet next on Dec. 17 in Oran, Algeria.

“The organization is concerned about the deteriorating economic conditions with contagion risks,” OPEC's Vienna-based secretariat said in an e-mailed statement yesterday. The group will “discuss the global financial crisis, the world economic situation and the impacts on the oil market.”

OPEC resolved at its most recent meeting in Vienna last month to stick more closely to official quotas, implying a cut of about 500,000 barrels a day.

Brent crude oil for November settlement declined as much as $3.57, or 4.3 percent, to $79.09 a barrel on London's ICE Futures Europe exchange, and traded at $79.12 at 10:27 a.m. Singapore time. Yesterday, the contract settled at $82.66, the lowest closing price since Oct. 12, 2007.

Author: Jo Amey