Oil's plunge continues

Oil's plunge continues

GEORGE JAHN
Thursday, January 08, 2009
VIENNA — Crude prices fell again Thursday on more evidence that the global economy is under strain and that demand for energy will fall further.

Light, sweet crude for February delivery fell $1.11 cents to $41.52 (U.S.)a barrel on the New York Mercantile Exchange.

On Wednesday, the contract tumbled 12 per cent, or $5.95, to settle at $42.63 after the U.S. Department of Energy's Energy Information Administration said that inventories of commercial crude oil inventories rose 6.7 million barrels. That was well above the 1.5 million-barrel build expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., suggesting demand continues to erode.

Later Thursday, the U.S. government will report natural gas reserves.

The “huge builds in both the crude and products markets for last week” was the main downward price driver, said trader and analyst Stephen Schork, in his Schork Report. And Toby Hassall, an analyst with investment firm Commodity Warrants Australia in Sydney, said the stock build reminded the market that demand remains weak.

The global economy continues to weaken and on Thursday, U.S. president-elect Barack Obama said the recession could “linger for years” unless Congress pumps unprecedented sums from Washington into the economy.

“I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible,” Mr. Obama said in a speech set to be delivered at George Mason University in Fairfax, Va., outside Washington. Excerpts from his prepared text were released in advance by his transition team.

It was the fourth day in a row that Mr. Obama has addressed this front-burner issue and it was the highest-profile appearance yet on an issue that can define his early months in office.

The economic crisis has hit retailers hard as consumers steer clear of buying even heavily discounted merchandise.

Department-store operator Macy's Inc. said Thursday it will close 11 stores in nine states — affecting 960 employees — and lowered its forecast for the fourth quarter after one of the weakest holiday seasons in years.

Wal-Mart, the largest retailer in the U.S., slashed its forecast for fourth-quarter earnings, and its shares fell more than eight per cent in pre-market trading.

Equities markets fell from Asia to Europe.

The FTSE 100 index of leading British shares slipped 78.94 points, or 1.8 per cent, at 4,428.57, despite another half percentage point interest rate reduction from the Bank of England, which took the benchmark rate to an all-time low of 1.5 per cent.

Meanwhile Germany's DAX fell 82.86 points, or 1.7 per cent, to 4,854.61, while France's CAC-40 was down 71.64 points, or 2.1 per cent, to 3,274.45.

Tokyo's Nikkei 225 stock average lost 362.82, or 3.9 per cent, to 8,876.42, snapping a seven-day winning streak as the yen traded higher, and Hong Kong's Hang Seng Index fell 571.55 points, or 3.8 per cent, to 14,415.91.

Oil prices had risen earlier this week to above $48 from a five-year low of $33.87 a barrel on Dec. 19 on investor concern that the conflict between Israel and Hamas in Gaza could spread to the rest of oil-rich Middle East and affect supplies.

Lebanese militants fired at least three rockets into Israel early Thursday, threatening to open a new front for the Jewish state as it pushed forward with a bloody offensive in the Gaza Strip that has killed nearly 700 people. Israel responded with mortar shells.

“There was a shift of focus to geopolitical issues last week,” Mr. Hassall said. “If the situation calms down a little over there, the market's focus will come back to the weak global demand outlook, and that should keep prices pretty suppressed.”

Also adding to tensions in markets recently was the gas dispute between Ukraine and Russia, with all gas deliveries to Europe through Ukraine frozen for a second day. Both sides met earlier Thursday and were in Brussels to speak to the EU about how to resolve the impasse.

In other Nymex trading, gasoline futures rose less than a penny to $1.08 a gallon. Heating oil gained 2.6 cents to $1.57 a gallon, while natural gas for February delivery added 9.4 cents to $5.966 per 1,000 cubic feet.

In London, February Brent crude fell 46 cents to $45.40 a barrel on the ICE Futures exchange.

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