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Oil down $1 to $36 on demand outlook

Oil down $1 to $36 on demand outlook
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First Published: Thu, Jan 15 2009. 11 20 AM IST
Updated: Thu, Jan 15 2009. 11 20 AM IST
Perth: Oil fell $1 on Thursday to near $36 a barrel, extending an overnight decline as grim data from the world’s major economies and the return of a banking crisis further darkened the global energy demand outlook.
Asian shares followed their US counterparts down, hitting a 5-week low as weak US retail sales data overnight was followed by a record fall in Japanese machinery orders, while continued strength in the dollar against the euro also weighed on crude.
US light crude for February delivery was down 88 cents at $36.41 a barrel by 10:30am, after having fallen by as much as $1.15.
London Brent crude fell 73 cents to $44.35 a barrel.
“The bad economic news has continued to pour in and concerns about demand destruction are exerting a lot of downward pressure on oil,” said Victor Shum, an analyst at Purvin & Gertz in Singapore.
The US Commerce Department said on Wednesday that total retail sales fell 2.7% last month.
Other countries’ indicators are also showing signs of trouble, with core Japanese private-sector machinery orders falling a record 16.2% in November, the German economy contracting sharply in the final quarter of 2008 and euro zone industrial output plunging in November.
Slowing economic growth means less need for oil, a link confirmed by figures showing US distillate demand fell to the lowest level in five years, causing stocks to surge by 6.4 million barrels in the week to 9 January.
Crude stocks also rose for the third consecutive week, by 1.2 million barrels to 326.6 million barrels, according to the Energy Information Administration.
Supplies at the NYMEX delivery point in Cushing, Oklahoma, were up 800,000 barrels at 33 million barrels, a record storage level at the site.
Analysts said oil traders will be looking towards U.S. economic indicators due out later on Thursday, including weekly jobless claims and monthly producer price changes, to gauge how the economy is faring.
Renewed doubts about Citigroup and Bank of America over their ability to fund their massive losses have revived jitters and suggested that the worst of the financial crisis was not yet over.
Oil prices have toppled from record highs over $147 a barrel struck in July as the economic crisis clips global oil demand, with the EIA now forecasting world consumption will drop by more than 800,000 barrels per day (bpd) this year.
“The key supporting factor continues to be Opec cuts and until we see a clearer picture of compliance and some signs of economic recovery, the outlook for oil remains rather bleak,” said Shum
With recent supply cuts by producer group Opec having had little success in propping up collapsing oil prices, several members, including top exporter Saudi Arabia, have said that the group may reduce output again in March.
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First Published: Thu, Jan 15 2009. 11 20 AM IST
More Topics: Markets | Oil | Crude | US | Recession |