Oil eased on Tuesday, pressured by expectations that a global recession will crush demand for oil, which could limit the impact of any supply cuts by OPEC.
US light crude for November delivery was down $1.25 at $73.00 a barrel by 12:55 p.m., after earlier hitting a session high of $75.69. The market hit a record high above $147 in mid-July. London Brent crude was $1.22 down at $70.81 a barrel.
The Organization of the Petroleum Exporting Countries is due to meet in Vienna on Friday, when the producer group is expected to reduce output to defend prices. Iran has said a drop in demand could push OPEC to cut output by 2-2.5 million barrels per day.
OPEC is meeting after a 50% fall in oil prices in just three months from a record peak above $147. The sharp drop partly reflects falls in demand from the United States, the world’s top energy consumer and other industrial countries. “A cut of about 2 million barrels per day will only offset the amount of US demand that has been lost on a year-over-year basis,” said Edward Meir of broker MF Global. “This leaves no extra barrels to offset the demand vaporization that is almost certainly taking place in other consuming markets,” he said.
OPEC could face an intense debate at their meeting on how much oil they should take off global markets as they balance their price needs against risks to a fragile world economy. The International Energy Agency, which advises industrialized countries, has said an OPEC output cut could prolong a global economic slowdown.
Oil and other commodities have been tracking moves in equity markets in the past few weeks. “I think they moved in line with equities yesterday and are now pulling back, using stock markets as a barometer for demand,” said Christopher Bellew at Bache Commodities.
European and Japanese stocks were firmer after sharp gains in the US on Monday on hopes of more government aid to the economy. Meir said commodities and equities had become very closely correlated. “This is a strong relationship that will likely override other factors in the short-term, including efforts by OPEC to take control of a market that has slipped away from it with alarm in speed,” Meir said.
The US dollar was near 1-1/2 year high versus the euro, which put pressure on dollar-denominated commodities, including oil and gold. US crude oil inventories probably rose 2.3 million barrels last week, a preliminary Reuters poll showed ahead of the US government energy data due on Wednesday. The poll also showed forecasts for a 100,000-barrel rise in distillate inventories, which include heating oil and diesel, and a 2.1 million barrel gain in gasoline supplies. (Reuters)