Oil fell to near a new 17-month low on Monday, extending the previous session’s $4 loss amid growing doubts over whether world governments can tame a crisis that threatens to push the global economy into a deep recession.
The threat of shrinking oil demand overshadowed OPEC’s quick deal on Friday to chop output by 1.5 million barrels per day, which some traders said would not be enough to arrest oil’s slide of more than 56% from a record $147 a barrel in July.
Japan’s Nikkei share index fell over 6% to touch its lowest since 1982 on Monday, as a record rate cut in South Korea and a G7 warning failed to soothe edgy traders.
US light crude for December delivery fell 66 cents to $63.49 a barrel by 0627 GMT, nearing Friday’s intra-day 17-month low of $62.65. Prices tumbled by $3.69 on Friday, taking the full-week loss to 10%. London Brent crude fell 70 cents to $61.35. “I think OPEC has actually taken a fairly decisive step to cut production but the oil market is obviously just focusing on economic woes at the moment,” said David Moore, a commodities strategist at the Commonwealth Bank of Australia.
Oil traders will now be watching for hard evidence of OPEC implementing its cuts. Asian oil refiners said on Monday they’d yet to receive notice of curbs on their Gulf crude oil shipments, but most were bracing for a likely 5% cut.
Iran’s OPEC governor said OPEC will cut output further if last week’s reduction does not stabilize the market, while Venezuela’s President Hugo Chavez said OPEC should set a $70-$90 per barrel price band.
Signs of a sharp slowdown in Europe and a barrage of profit warnings and job cut news from companies worldwide have intensified fears of deep global recession, which are continuing to dominate investor sentiment after US stocks tumbled and European shares had their lowest close in 5-½ years on Friday.
Japan’s Nikkei average tumbled and the yen advanced on Friday as risk remained a four-letter word and traders shrugged off a warning from the Group of Seven about excessive volatility, fanning speculation of possible central bank intervention. Evidence of weakening oil demand also mounted as Japan’s top refiner Nippon Oil said it would cut production by 15% in November versus last year while data showed China’s September oil demand rose by just over 2%, its slowest pace in 10 months.
Later this week the focus will be squarely on the United States, where the Federal Reserve is expected to cut lending rates by half a point on Wednesday and advance Q3 US data is expected to show a 0.5% contraction in gross domestic product after 2.8% growth in the last quarter.
Oil has plunged as the credit crisis hit economic growth and fuel demand in the United States and other industrial nations, and as some investors and speculators pulled out of commodity markets to move to cash or less-risky holdings like bonds. Crude oil speculators on the New York Mercantile Exchange shifted back to a net long position while open interest dropped in the week to Oct. 21, the US Commodity Futures Trading Commission reported on Friday. (Reuters)