Oil prices extend sharp fall

SHARP FALL: Oil prices dropped below $40 a barrel, weakened anew by growing signs of deteriorating world oil demand. (Getty Images)

Oil prices extended their sharp fall to drop further below $40 a barrel on Tuesday, weakened anew by growing signs of deteriorating world oil demand.

Final third-quarter US gross domestic product data due later in the day is likely to underscore the ailing state of the world economy as a steady series of stimulus measures and policy moves - including China's fifth interest rate cut - fail to halt a slide towards the worst recession in decades.

US crude for February delivery fell 23 cents to $39.68 a barrel after diving 6 percent on Monday, with volume particularly thin as traders seek to close out the worst-ever year for oil futures, which are now down 57 percent from January.

ICE Brent fell 10 cents to $41.35 a barrel.

Deepening losses for US stocks and the most dramatic decline ever in Japanese exports heightened anxiety on Monday about the condition of the world economy; signs that oil demand is likely to contract for the first time in a quarter century has already knocked oil prices over $100 off their July peaks.

The Organization of the Petroleum Exporting Countries (OPEC) has rushed to cut about 5 percent of world supplies to counter the collapse in demand, last week agreeing an unprecedented 2.2 million barrels per day.

A senior OPEC delegate said the group was ready to reduce supply further if needed, but oil traders have said they are most concerned for now with seeing evidence of improved compliance with the existing curbs.

"The trend at the moment is still south," said Justin Wilks, director of trading and operations for $300 million Australia-based fund manager Global Commodities.

"Any amount of production cuts will take a little time to come through, but like base metals it's all tied to economics at the moment," he added.

While Saudi Arabia had cut output more deeply ahead of OPEC's meeting two weeks ago, other major members have yet to show their hand. Sources with several Asian refiners said on Tuesday that they had not received any new notices as yet.

Prices got no lift from a WSI Corporate forecast that a relatively warm January will give way to colder-than-usual late-winter weather in the US Northeast that could boost demand for heating fuels.

Surging demand from China and other emerging nations sent crude on a six-year rally to record highs over $147 a barrel stuck in July, before the economic crisis began to slow demand in top consumer the United States and big economies.

Now, however, even the leaders appear to be showing the toll of the global financial crisis and its impact on the economy.

Apparent oil consumption in China fell by 3.2 percent in November from a year ago, the first decline in nearly three years, newswire Reuters calculations confirmed this week, while crude imports into the world's No. 2 energy consumer dropped to the lowest level this year.

Later on Tuesday traders will be looking for confirmation the US economy contracted by 0.5 percent in the third quarter, in line with preliminary data.

On Wednesday, weekly US oil inventory data is expected to show crude stocks rose by 300,000 barrels in the week to Dec. 19, with distillate and gasoline stocks also expected to have gained, according to an early Reuters poll of analysts. (Reuters)

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READERS' COMMENTS

OPEC did their part now it is on us
Posted by Martin, Dubai, UAE on Tuesday 23 December 2008 at 15:31 UAE time

I guess that is the consumer's revenge for the skyrocketing oil prices earlier this year. OPEC boosted prices and let global consumer prices and production costs rise and did their part to the global financial crises.

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