Singapore: Oil steadied around $40 a barrel on Thursday, near its lowest in more than four years, as further evidence of slowing demand trumped Opec’s biggest ever production cut.
US light crude for January delivery, which expires on Friday, fell 2 cents to $40.04 a barrel by 7am after falling to $39.19 earlier in the session, the lowest since July 2004.
London Brent crude for February rose 2 cents to $45.55.
The Organization of the Petroleum Exporting Countries, eager to build a floor under dipping prices, announced on Wednesday it would cut 2.2 million barrels daily of output starting 1 January, slightly more than expected.
It comes on the heels of 2 million barrels a day (bpd) of cuts since September, but instead of boosting oil prices, it deepened the gloom over demand.
With top forecasters predicting the first decline in world energy use since 1983, Opec’s move may not be enough to halt oil’s almost three-quarters dive since its July all-time peak above $147.
“Countries other than the Saudis are going to have difficulty to comply with this cut. Those oil producing countries, if they want to survive, they have to produce, even at $40 oil,” said Tetsu Emori, fund manager at Astmax Co Ltd in Japan.
A prolonged period of cheap prices could slow new investment, crimping supply, a stark turnaround just months after worries that high prices were eating into demand.
Traders also took their cue from US crude oil and refined fuel stocks, which rose last week as imports of oil products increased, while domestic refiners curbed output rates in the light of soft demand.
Commercial crude oil stocks in the United States were up 500,000 barrels to 321.2 million, the Energy Information Administration said..
It also said oil demand in the world’s top consumer was expected to grow by only 1 million bpd, or 0.2%, over the next two decades, as higher vehicle fuel standards and increased use of renewable fuels stifle petroleum consumption.
Americans are likely to travel less for the Christmas holiday period for the first time since 2002, travel and auto group AAA said.
US shares fell on Wednesday, prompting Japan’s Nikkei to inch lower as well on Thursday, as investors wondered what tools were left to tackle the year-long recession after the Federal Reserve on Tuesday cut rates to their lowest on record.
The cut has sent the US dollar tumbling against major currencies, hitting the weakest in more than 13 years against the yen on Wednesday.