Crude oil is set for its biggest weekly decline since March 2003, trading near an almost four-year low, as the economic contraction and job losses in the U.S. cause a slump in fuel demand.
Oil is set for a 19 percent drop this week after the U.S. was declared to be in a recession. Energy, wheat and copper led a plunge in commodities yesterday as the Standard & Poor’s GSCI raw materials index fell to the lowest since February 2005. A report today will probably show U.S. November payrolls dropped the most since the 2001 terrorist attacks.
“The connection is pretty clear — fewer people in jobs is a clear sign of a weakening economy,” said Toby Hassall, a research analyst at Commodity Warrants Australia in Sydney. “As unemployment rises, GDP falls and oil demand falls. It’s not likely to show much hope for the economy.”
Crude oil for January delivery was at $44.02 a barrel, up 35 cents, at 1:03 p.m. Singapore time on the New York Mercantile Exchange. Yesterday, futures tumbled $3.12, or 6.7 percent, to $43.67 a barrel, the lowest settlement price since Jan. 5, 2005.
Oil prices have fallen 70 percent since reaching a record $147.27 on July 11. Crude’s weekly drop is the largest since a 24 percent decline during the week ending March 21, 2003.
The U.S. entered a recession in December 2007, the National Bureau of Economic Research, a private, non-profit panel of economists that dates American business cycles, said Dec. 1. U.S. equity markets plunged yesterday as oil stocks dropped on forecasts of $25 a-barrel-crude from analysts at Merrill Lynch.
“The equities market will be looking at the jobs data and the fact that it will affect stocks means it will affect the energy market,” said Clarence Chu, a trader at options dealer Hudson Capital Energy in Singapore. “People are looking at the economies in recession and they know oil demand will go down.”
The Labor Department will probably say today that payrolls in November dropped the most since the 2001 terrorist attacks, a Bloomberg news survey showed.
U.S. fuel demand during the four weeks ended Nov. 28 was down 6.2 percent from a year earlier, an Energy Department report showed Dec. 3.
The GSCI raw materials index has slumped 63 percent from its peak on July 3 as a credit crunch and global recession slash demand for energy and raw materials.
Copper tumbled 5.1 percent yesterday, bringing its drop this week to almost 10 percent and sending the price to its lowest in more than three years. Gold for immediate delivery was little changed today at $768.90 an ounce.
The economies of the U.S., Japan and Europe are all in recession for the first time since World War II. The European Central Bank yesterday cut its benchmark interest rate by the most in its 10-year history to stem the collapse. The Bank of England and Sweden’s central bank followed with reductions.
Brent crude oil for January settlement was at $42.60 a barrel, up 32 cents, on London’s ICE Futures Europe exchange at 1:04 p.m. Singapore time. The contract yesterday fell $3.16, or 7 percent, to $42.28, the lowest settlement since Jan. 5, 2005.
Qatar’s oil minister said on Dec. 3 that the Organization of Petroleum Exporting Countries will “definitely” cut output at its next meeting in Algeria on Dec. 17.
“If it’s big enough a supply cut, that could support prices,” said Commodity Warrants’ Hassall. “Obviously demand has come off quite a bit in the past months, if OPEC can rebalance the equation, that will help prices.”
OPEC oil ministers agreed on Oct. 24 in Vienna that the 11 members with quotas would lower supply by 1.5 million barrels a day starting in November. Production by the 11, excluding Iraq and Indonesia, declined 725,000 barrels to 28.24 million barrels a day last month, according to data compiled by Bloomberg News.
“In our view OPEC will cut production by another 1-1.5 million barrels a day on Dec. 17,” Tobias Merath, head of commodity research at Credit Suisse Private Bank in Singapore, said in a report today. “We think prices should start stabilizing after the OPEC meeting. Still a bottoming process is likely to extend well into 2009.”