Perth: Oil slipped towards $37 a barrel on Tuesday, extending its near 8% overnight loss, as investors grew more pessimistic about energy demand on predictions that the world economy will slow down sharply.
Worsening recessionary signs forced investors to flee risky assets such as commodities and take refuge in the safe haven of US Treasury bonds on Monday, while Asian shares fell on concerns about the United States sinking further into recession.
US light crude for February delivery fell 34 cents to $37.25 a barrel, adding to overnight losses of $3.24. London Brent crude rose 11 cents to $43.02.
“It’s generally a very negative tone out there and there is a lot of pessimism on oil demand in the near term,” Toby Hassall, chief analyst at Commodity Warrants Australia in Sydney.
Slumping fuel demand due to the global recession sent oil prices down 54% last year, and crude is now off more than $100 from its record peak above $147 a barrel last July.
Top central bankers said on Monday the global economy will slow down sharply in 2009 as industrialised economies contracted, while latest data from the Organisation for Economic Cooperation and Development (OECD) showed that the world’s major and emerging economies were heading towards a “deep slowdown”.
Analysts said the resumption of Russian gas supplies to Europe, a key factor which has helped oil’s rally at the start of the year, was dampening crude oil’s rise.
Russian Prime Minister Vladimir Putin ordered the resumption of gas supplies via Ukraine to Europe on Tuesday after signing a deal with Kiev on monitoring gas flows, six days after a Russian-Ukrainian price row cut deliveries in freezing temperatures.
A rally by the dollar against the euro also put downward pressure on oil prices, analysts said. The US dollar was slightly off a one-month high touched the previous day versus the euro amid expectations the European Central Bank will cut interest rates this week.
Oil prices are falling despite news that Opec members may cut production further and that heating oil demand in top consumer the United States will climb above average this week due to cold weather.
In yet another sign that energy consumption in United States had slumped, a preliminary Reuters poll ahead of Wednesday’s US government inventory data forecast crude stocks to rise for the third consecutive session by 2.2 million barrels last week, with stocks of refined product also increasing.