Oil slid to a 3 and a half year low under $48 on Tuesday, extending the previous day’s sharp drop as signs grew the global economy is in worse shape than expected and after OPEC opted to delay talks on further output cuts.
Japan’s Nikkei average slid 5% on Tuesday, with exporters hit by a stronger yen after signs the US economy has been in a recession for a year heightened risk aversion. US light crude for January delivery fell $1.43 to $47.85 a barrel by 0342 GMT, the lowest since May 2005 and almost $100 off the record $147.27 peak reached in July. That followed an over 9% dive on Monday. London Brent crude dropped $1.40 to $46.57.
Surging demand from emerging countries sent oil on a six-year rally from 2002, but prices have tumbled since July’s all-time high above $147 a barrel as economic turmoil erodes demand in top consumer the United States and other big developed nations. Producer group OPEC on the weekend put off a decision on whether to deepen production curbs until later this month as Saudi Arabia and other Gulf members called for greater compliance, a delay that sent oil prices tumbling on Monday.
More bearish news could be in store on Wednesday, with US crude oil inventories likely having risen by 1.8 million barrels last week, a third consecutive build, as imports continued to increase, a preliminary Reuters poll of analysts showed. “While some price consolidation above last month’s lows of $48.25 could be forthcoming (on Tuesday), we will be looking for Wednesday’s EIA report to provide additional fodder for the bears,” said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.
The Organization of the Petroleum Exporting Countries is ready to cut production by a significant amount when it meets later this month in Algeria in order to whittle down high stocks, the group’s secretary-general said on Monday. But Saudi Arabian Oil Minister Ali al-Naimi told Saudi-owned al-Hayat newspaper OPEC would not need to make a further output cut in Algeria if producers comply with previous curbs and fuel stocks decline.
The Abu Dhabi National Oil Co (ADNOC) raised more questions on Tuesday by telling its Asian customers that it would increase term crude oil supplies in January, an apparent reversal of curbs imposed after OPEC cut output a month ago. Given the emphasis on compliance, it was not clear why ADNOC, the main oil producer for the United Arab Emirates and a core Gulf OPEC member, would boost sales, and some traders said it may be cutting spot market sales to offset higher term shipments. (Reuters)