Oil prices fell to four-and-a-half-year lows in Asia yesterday as investor pessimism over global crude demand outweighed OPEC’s largest-ever production cut.
Light, sweet crude for January delivery was down US$0.06 to US$40 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. At one point, it fell as low as US$39.19 — a level not seen since at least July 2004.
Overnight, the contract fell US$3.54 to settle at US$40.06 a barrel, after touching US$39.88.
OPEC, which accounts for about 40 percent of global oil supply, said on Wednesday it planned to reduce its output quotas by 2.2 million barrels a day.
But markets had already expected a vastly reduced flow of oil and traders focused instead on troubling economic data that point to a long economic slump.
“The market apparently had already priced in this cut,” said Peter McGuire, managing director at investment firm Commodity Warrants Australia in Sydney. “I think OPEC will have to have another meeting in January, and I wouldn’t be surprised to see possibly a 3 million cut next time.”
OPEC’s next official meeting is scheduled for March. The group had already announced cuts totaling 2 million barrels earlier this year, also with little effect. The unprecedented production cuts and the market reaction show just how fast energy demand has fallen during the worst economic downturn in at least a generation.
Oil prices have tumbled 73 percent since July. What started as a crisis in the US subprime mortgage sector last year has mushroomed into a recession in most developed countries and a sharp downturn in emerging nations.
Companies across the world are laying off workers and banks are reluctant to lend. Plunging property values and high debt levels have led many consumers to pull back spending.
“I’m worried about growth,” McGuire said. “You have to get people spending.”
Oil prices may fall as low as US$35 a barrel during the next few weeks, he said.
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