Oil slips to $73.25 on recession concerns

SINGAPORE (AP) — Oil prices fell to a 14-month low yesterday in Asia as bad US economic news heighten fears that a significant global economic slowdown will undermine demand for crude.

Light, sweet crude for November delivery was down $1.29 to $73.25 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell overnight $4.09 to settle at $74.54, the lowest settlement price since Aug. 31, 2007.

“The market is just very worried about a severe international economic downturn,” said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. “They’re thinking that oil consumption will be weaker than expected.”

Investors were discouraged Wednesday by a US Commerce Department report that showed retail sales dropped in September by 1.2 percent, a sign that turmoil in the credit markets has begun to slow consumer spending. Later in the day, the Beige Book, the assessment of business conditions from the Federal Reserve, said that the economy continued to slow in the early fall.

Investors are beginning to anticipate an output cut by the Organization of Petroleum Exporting Countries at its next meeting in November in a bid to boost prices, Moore said.

OPEC said in a report Wednesday that oil consumption dropped in developed countries by more than 1 million barrels a day in September compared to the same period a year earlier. Demand growth from developing countries increased by a daily 1.2 million barrels over the same time, OPEC said.

“OPEC may try to take some action,” Moore said. “It’s quite likely they will adjust lower their production targets.”

In other Nymex trading, heating oil futures fell 3.48 cents to $2.16 a gallon, while gasoline prices decreased 3.95 cents to $1.74 a gallon. Natural gas for November delivery dropped 1.11 cents to $6.48 per 1,000 cubic feet.

In London, November Brent crude fell $1.20 to US$69.60 a barrel on the ICE Futures exchange.

Oil prices have plunged from record highs above 147 dollars, reached in July, because of worries over demand in a slowing global economy.

The dramatic rise in oil prices was partly driven by a flow of investor funds.

With global credit lines now being squeezed, many investment funds that had big positions in oil are liquidating them to raise cash because of redemptions from clients, Shum said.

“The oil market is caught in the wake of four tsunamis: a global recession, tighter credit, increased refining capacity, and rising non-OPEC supplies – all of which pressure the demand for OPEC crude,” JPMorgan analyst Lawrence Eagles said in a report.

The OPEC on Wednesday cut its estimate for growth in demand for oil this year and in 2009 largely because of an “excessive” easing of demand in the United States.

For this year, the cartel cut its estimate for growth in demand to 550,000 barrels per day, giving average total demand of about 86.5 million bpd.

“The slow US economy is seen as the main cause of the sharp slowdown in petroleum product demand this year,” OPEC said.

The cartel is to hold a special meeting on Nov. 18 to discuss the global financial crisis and its impact on the oil market.

Several OPEC members have called for the meeting to cut output to shore up prices.

Shum said the oil market is waiting for further signals on what OPEC will do, and has not yet priced in any production cut.

“Until there are clear indications out of OPEC, I think we can expect more downward volatility,” he said. – With AFP