Oil dips below $59

Oil dips below $59
Investors look past China's stimulus plan as economic concerns and waning demand dominate.
By Ben Rooney, CNNMoney.com staff writer
Last Updated: November 11, 2008: 12:05 PM ET

NEW YORK (CNNMoney.com) -- The price for a barrel of crude oil fell below the psychologically important $60 level Tuesday morning as investors looked past China's massive economic stimulus plan to focus on weak global demand and a stronger dollar.

Light, sweet crude for December delivery was down $3.51 at $58.90 a barrel in New York. On Monday, oil rose $1.37 to settle at $62.41 a barrel.

The price of oil has fallen about 60% from July's all-time high above $147 a barrel on fears that global economic weakness will continue to undermine demand for gasoline and other petroleum products.

Demand concerns were briefly tempered Tuesday after the Chinese government announced a $586 billion plan to boost economic activity in one of the world's key consumers of oil. But investors now appear less optimistic about the plan, which will take time to implement, as the outlook for global economic growth remains cloudy.

"Yesterday's trade rebounded sharply higher at the open based on the Chinese stimulus package," said Tom Pawlicki, oil industry analyst at MF Global in Chicago. "In our opinion, however, the rally was too enthusiastic for the news."

Pawlicki points out that the package will provide "only" $14.6 billion in the current quarter, with the remaining amount disbursed over the next two years. He added that the plan's spending on housing and infrastructure may not provide the desired economic effect.

"The problem is that there is already a housing glut in China, and the infrastructure will likely rebuild the earthquake devastated area in Sichuan rather than create much new expansion," Pawlicki said.

Global markets: The oil market is also being pressured by falling stock prices worldwide.

Stocks in the United States were lower on recession fears. The Dow Jones industrial average was down about 3% roughly two hours into the session.

Major indexes in Europe were all lower in morning trading. Britain's FTSE 100 was down 3.2%, and France's CAC-40 was 4.5% lower. The DAX in Germany was down 5.2% as well.

The declines in Europe followed a slump in Asia, where Japan's benchmark Nikkei index dropped 3%. In Seoul, the KOSPI fell about 2%, while Hong Kong's Hang Seng index shed 4.8%.

Oil traders have closely tracked world stock markets to assess the severity of what many economists say is a looming global recession. As a result, oil prices often fall when stock prices retreat.

Dollar: The price of oil was also pushed lower by a stronger U.S. dollar, which rallied on the back of the global stock selloff.

The dollar rose 1.5% against the euro to $1.2562 in New York. Against the British pound, the greenback was up 1.2% at $1.5426.

Investors often buy oil and other commodities to hedge against a weaker dollar and sell those assets when the dollar rises. And a more robust buck makes oil, which is priced in dollars, less attractive to overseas buyers.

A grim outlook: Markets in the United States have been under pressure as rising unemployment, anemic consumer spending and weak corporate results threaten to tip the nation into a deep recession.

Last week, the U.S. Labor Department reported that the economy has lost 1.2 million jobs so far this year. As the job market deteriorates, many American households have cut back on spending.

Auto sales fell to a 25-year low in October as tight credit conditions and the weak economy kept consumers out of showrooms. At the same time, retail sales declined a larger-than-expected 0.7% in October, prompting concerns about the all-important holiday gift-buying period.

This reluctance to spend has a ripple effect on the broader economy, since consumer spending makes up more than 70% of U.S. gross domestic product.

In the third quarter, GDP declined at an annual rate of 0.3%, according to estimates released by the Bureau of Economic Analysis. That came after an increase of 2.8% in second-quarter GDP.

Many economists are predicting GDP will shrink again in the fourth quarter. Two consecutive quarters of declining GDP is one of the classic definitions of a recession.

Gasoline: Retail gas prices fell for the 55th day in a row.

The national average price for a gallon of regular gasoline came down another 2 cents overnight to $2.220, according to a daily survey by the American Automobile Association.

Tuesday's national average is down 46%, or $1.89, from the record high price of $4.114 that AAA reported on July 17. To top of page
First Published: November 11, 2008: 8:39 AM ET

Crude Oil Falls as IEA May Cut Demand Forecast a Third Month

Crude Oil Falls as IEA May Cut Demand Forecast a Third Month

By Mark Shenk

Nov. 11 (Bloomberg) -- Crude oil fell on speculation the International Energy Agency will lower its 2009 oil-demand forecast as slowing economic growth cuts fuel consumption.

The IEA, which coordinates energy policy in 28 developed countries, will reduce the estimated growth in global demand for a third month in a report tomorrow, according to four former IEA analysts. The euro-area economy will probably contract 0.7 percent next year, Morgan Stanley said in a report.

``It all comes back to the economy and how deep folks think the recession will be,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``Demand is poor and should get worse as the recession deepens.''

Crude oil for December delivery declined $2.79, or 4.5 percent, to $59.62 a barrel at 9:44 a.m. on the New York Mercantile Exchange. Prices, which have tumbled 60 percent since reaching a record $147.27 on July 11, are down 38 percent from a year ago.

``The view of the market is very pessimistic,'' said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut. ``The only news I foresee that can move prices higher is a cold spell, which would boost heating oil demand, and that would have only limited impact.''

The IEA already has cut its 2008 forecast about 1.3 million barrels a day in seven revisions this year. Last week, it published a summary of its annual World Energy Outlook, slashing its 2030 projection by 9.4 percent to 106 million.

OPEC Concerns

The Organization of Petroleum Exporting Countries cited falling demand for its Oct. 24 decision to reduce production by 1.5 million barrels a day. OPEC ministers will discuss the market situation when they meet next on Dec. 17 and may agree to another supply cut then, the group's president, Chakib Khelil, said on Nov. 8 in Algiers.

``This is a tough time for OPEC because of the demand picture,'' Mueller said. ``Every time they cut production they are building up spare capacity. There's also a risk that they may make cuts and prices still won't rebound.''

Global stock markets declined as Credit Suisse Group AG said developed economies are headed for the worst recession since 1945. The Standard & Poor's 500 Index declined 18.61 points, or 2 percent, to 900.60. The Dow Jones Industrial Average fell 165.43, or 1.9 percent, to 8,705.11.

``Prices are lower because of sagging global equities as well as the view that China's stimulus package is insufficient to prop oil demand in the face of a prolonged global economic slowdown,'' Armstrong said.

On Nov. 9, the Chinese government pledged spending to sustain economic growth through 2010 and switched to a ``relatively loose'' monetary policy. China is the world's fourth-biggest economy and the second-biggest consumer of oil.

U.S. Inventories

U.S. crude-oil supplies probably rose for a seventh week as imports rebounded, a Bloomberg News survey of analysts showed. Stockpiles probably increased 750,000 barrels in the week ended Nov. 7 from 311.9 million the week before, according to the median of 12 analyst estimates before an Energy Department report this week.

Gasoline stockpiles probably increased 200,000 barrels from 196.1 million barrels the week before, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, rose 1 million barrels from 127.8 barrels the week before, the survey showed.

The department is scheduled to release its weekly report on Nov. 13 at 11 a.m. in Washington. The report is being delayed by a day because of today's Veterans Day holiday.

Brent crude oil for December settlement decreased $3.06, or 5.2 percent, to $56.02 a barrel on London's ICE Futures Europe exchange. Futures touched $55.86, the lowest since Jan. 30, 2007.