Oil May Hit $40 in Dec. Despite OPEC Cuts

(The China Post) - Oil prices sank to fresh 3-year lows Thursday in Asia as more bleak news from the world's largest economy signaled that crude could tumble below $40 by the end of the year.

Light, sweet crude for January delivery was down $1.19 cents to $45.60 a barrel - the lowest since closing at $45.42 on Feb. 10, 2005 - in electronic trading on the New York Mercantile Exchange by mid-afternoon in Singapore. The contract fell 17 cents overnight to settle at $46.79.

"You could see prices testing $40 by the end of the year because the economic data is really ugly at the moment," said Christoffer Moltke-Leth, head of sales trading at Saxo Capital Markets in Singapore. "Demand destruction is still very much the concern."

Oil prices have tumbled about 69 percent since peaking at $147.27 in July.

Investors were dismayed at more poor economic news from the U.S. The Institute for Supply Management said Wednesday its services sector index fell to 37.3 in November from 44.4 in October. The reading was significantly lower than the 42 the market expected.

The Labor Department reported that productivity rose at an annual rate of 1.3 percent in the July-September quarter, down from a 3.6 percent growth rate in the second quarter.

Investors took little solace from a report showing U.S. crude inventories fell last week. For the week ended Nov. 28, crude inventories fell by 400,000 barrels, the Energy Department's Energy Information Administration said Wednesday.

Analysts had expected a boost of 2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

"People are really looking at economic figures right now and how bad a shape the world is in," Moltke-Leth said.

The Organization of Petroleum Exporting Countries has signaled it plans to lower output quotas at a Dec. 17 meeting, adding to a production cut of 1.5 million barrels a day in October.

Analysts are skeptical that an output reduction by OPEC can reverse the fall in the prices.

"I don't think it will have a major impact in the near term," Moltke-Leth said. "However, low prices will increasingly lead drilling and exploration projects to be postponed or canceled, so supply will become a concern in the medium term."

In other Nymex trading, gasoline futures fell 3.15 cents to $1.01 a gallon. Heating oil dropped 2.45 cents to $1.56 a gallon while natural gas for January delivery was steady at 6.35 per 1,000 cubic feet.

In London, January Brent crude fell $1.39 to $44.05 on the ICE Futures exchange.

- Copyright 2008, The China Post. All rights reserved. 

Back