Oil falls below $50.00

Oil drops below $50 a barrel

MARK WILLIAMS
Monday, December 01, 2008
COLUMBUS, Ohio — Oil prices tumbled below $50 (U.S.) a barrel Monday as manufacturing activity in the U.S. hit a 26-year low, a showing that was much worse than expected.
The price drop also comes two days after OPEC said it would not cut production of crude before its regularly scheduled meeting in three weeks.
Manufacturing and consumer spending has eroded quickly and lowered demand for energy. That has erased nearly 66 per cent of crude's market value since July when it peaked near $150 per barrel.
Light, sweet crude for January delivery fell 9 per cent, or $5.15 to $49.28 a barrel on the New York Mercantile Exchange. The contract had settled down a penny at $54.43 on Friday.
Analyst Phil Flynn with Alaron Trading Corp. said the $50 price remains significant psychologically for traders.
“It opens up the possibility of further declines,” he said.
In a note to investors Monday, Raymond James Equity Research slashed its oil price forecast from $90 per barrel to $60 per barrel.
In London, January Brent crude fell 9 per cent, $4.85 to $48.64 on the ICE Futures exchange.
On Saturday, Saudi Oil Minister Ali Naimi said that Organization of Petroleum Exporting Countries will do what needs to be done to shore up falling oil prices when the group meets Dec. 17 in Algeria, but for now it was too early to make another cut.
Prices continued to slide despite a separate report by Iranian state TV in which OPEC Secretary-General Abdullah El-Badri said that a daily oil production cut of between 1 million and 1.5 million barrels was likely in December.
OPEC, which accounts for about 40 per cent of global supply, cut output by 1.5 million barrels a day in October, bringing total quota cuts to around 2 million barrels a day this year.
OPEC's actions have had no discernible effects on oil prices, which have fallen another 26 per cent since the last round of production cuts.
“The OPEC meeting from their viewpoint was a disaster,” Mr. Flynn said.
Internal divisions within OPEC are reminiscent of the 1990s when an oil glut forced prices down and OPEC states routinely cheated on production quotas.
In an environment of falling demand, Mr. Flynn said oil traders were also selling off as the Dow Jones industrial average gave up 400 points Monday and because of the bad manufacturing figures.
The U.S. Institute for Supply Management said its gauge of manufacturing activity fell to a reading of 36.2 in November. That was a steeper-than-expected drop from the October reading of 38.9 and underscored that the hard economic times were beginning to have a major effect on manufacturing. A reading below 50 indicates the sector is contracting.
The U.S. Commerce Department reported that construction spending dropped by 1.2 per cent in October, much bigger than the 0.9 per cent decline many analysts expected.
The decline in the stock market follows the first five-day string of gains for both the Dow and the Standard & Poor's 500 since July, 2007, and the largest five-day percentage gain in at least 75 years. The Dow has gained 16.9 per cent and the S&P 500 index 19.1 per cent since a rally that began Nov. 21.
“The explosive rally we saw last week seems like a memory today,” Mr. Flynn said.
A survey of manufacturing activity in the euro zone and Britain also points to sharper-than-expected contraction in output. In China, an equivalent survey of its manufacturing sector also made for grim reading, generating fears that one of the main engines of global growth over the last few years is slowing sharply.
Sucden Research in London cited data from the United Nations, which now expects the global economy to grow by just 1 per cent in 2009, compared with an earlier forecast expecting growth of 2.5 per cent.
Meanwhile, Saudi King Abdullah told the Kuwaiti newspaper Al-Seyassah in an interview published Saturday that oil should be priced at $75 a barrel.
Iranian Oil Minister Gholam Hossein Nozari was quoted as saying Sunday that the market was oversupplied by around 2 million barrels per day and that production should be cut by that amount.
Meanwhile, U.S. prices at the pump continued to fall, but at a slower rate. The price fell half a cent overnight to $1.82 per gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. That is 64.3 cents lower than a month ago and $1.248 lower than a year ago.
In other Nymex trading, gasoline futures tumbled 9 cents to $1.1185 a gallon. Heating oil dropped 10 cents to $1.6257 a gallon. Natural gas for January delivery, however, rose $6.619 per 1,000 cubic feet.
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