Oil deepens losses below $40 on economic fears

Oil deepens losses below $40 on economic fears

Singapore: Oil prices extended their sharp fall to drop further below $40 a barrel on Tuesday, weakened anew by growing signs of deteriorating world oil demand.

Final third-quarter US gross domestic product data due later in the day is likely to underscore the ailing state of the world economy as a steady series of stimulus measures and policy moves - including China’s fifth interest rate cut - fail to halt a slide towards the worst recession in decades.

US crude for February delivery fell 49 cents to $39.42 a barrel after diving 6% on Monday, with volume particularly thin as traders seek to close out the worst-ever year for oil futures, which are now down 57% from January.

ICE Brent fell 42 cents to $41.03 a barrel.

Deepening losses for US stocks and the most dramatic decline ever in Japanese exports heightened anxiety on Monday about the condition of the world economy; signs that oil demand is likely to contract for the first time in a quarter century has already knocked oil prices over $100 off their July peaks.

The Organization of the Petroleum Exporting Countries (Opec) has rushed to cut about 5% of world supplies to counter the collapse in demand, last week agreeing an unprecedented 2.2 million barrels per day.

A senior Opec delegate said the group was ready to reduce supply further if needed, but oil traders have said they are most concerned for now with seeing evidence of improved compliance with the existing curbs.

While Saudi Arabia had cut output more deeply ahead of Opec’s meeting two weeks ago, other major members have yet to show their hand. Sources with several Asian refiners said on Tuesday that they had not received any new notices as yet.

Prices got no lift from a WSI Corporate forecast that a relatively warm January will give way to colder-than-usual late-winter weather in the US Northeast that could boost demand for heating fuels.

Surging demand from China and other emerging nations sent crude on a six-year rally to record highs over $147 a barrel stuck in July, before the economic crisis began to slow demand in top consumer the United States and big economies.

Now, however, even the leaders appear to be showing the toll of the global financial crisis and its impact on the economy.

Apparent oil consumption in China fell by 3.2% in November from a year ago, the first decline in nearly three years, Reuters calculations confirmed this week, while crude imports into the world’s No. 2 energy consumer dropped to the lowest level this year.

Later on Tuesday traders will be looking for confirmation the US economy contracted by 0.5% in the third quarter, in line with preliminary data.