ForexGen | Oil Falls Below $54 as US Demand Outlook Worsens
Oil falls below $54 as rising oil inventories, bad economic data point to falling US demand
Oil
prices fell below $54 a barrel Thursday as dismal U.S. economic data
and rising crude inventories outweighed the possibility of production
cuts by OPEC and Russia.
By midday in Europe, light, sweet crude for
January delivery was down $1.19 to $53.25 a barrel in electronic
trading on the New York Mercantile Exchange.
Markets in the United States are closed Thursday for the Thanksgiving holiday, but electronic trading on the Nymex continues.
The dollar's weakening against other major currencies
helped the Nymex contract recover from a low of $52.62 earlier in the
session. Investors tend to increase their holdings in commodities like
oil when the dollar falls and as a hedge against inflation.
In London, January Brent crude fell 65 cents to $53.27 on the ICE Futures exchange.
Prices have hovered just above three-year lows this week as bad economic news painted a bleak picture of U.S. demand for crude.
The
Commerce Department on Wednesday said orders to U.S. factories for
big-ticket manufactured goods plunged in October by the largest amount
in two years. The 6.2 percent drop was more than double the 3 percent
decline economists expected.
The department also said Americans cut
their spending in October by the largest amount since the 2001
terrorist attacks. Consumer spending plunged by 1 percent last month,
worse than the 0.9 percent decline that had been expected.
The fall
in consumer spending has shown up in rising oil and gasoline
inventories. For the week ended Nov. 21, crude stocks jumped by 7.3
million barrels, the Energy Department's Energy Information
Administration said in a weekly report Wednesday. Analysts had expected
a boost of only 400,000 barrels.
Gasoline inventories rose by 1.9 million barrels. Analysts expected stockpiles to rise by only 300,000 barrels
"It
looks like $50 is a support level," said Gerard Rigby, an energy
analyst with Fuel First Consulting in Sydney. "But when it gets up to
$54, people take profits. No one wants to get too bullish."
Prices
have fluctuated between about $50 and $54 a barrel this week as
investors grapple with the impact the global economic slowdown will
have on crude demand.
The Nymex contract rose $3.67 overnight to
settle at $54.44 on expectations China's biggest interest rate cut in
11 years -- and the fourth in three months -- will boost growth and
demand for oil in the world's second-largest economy.
"People are
still confused about the overall global economic situation," Rigby
said. "Traders were looking for supportive news, so they looked to the
China rate cuts."
"But for the next few months, everyone is going to be worried about the U.S. economy since it's still the largest in the world."
The
dollar weakened Wednesday, helping to limit oil's losses. By the
afternoon in Europe, the euro was worth $1.2921, up from $1.2899 on
Wednesday, while the British pound rose to $1.5446 from $1.5350 in the
previous session.
The dollar also retreated against the Japanese currency, to 95.41 yen from 95.65 yen on Wednesday.
Expectations
of a production cut by the Organization of Petroleum Exporting
Countries has helped support prices. OPEC, which accounts for 40
percent of global supply, will hold an informal meeting Saturday in
Cairo and an official meeting Dec. 17 in Algeria.
Some OPEC members,
such as Venezuela, have called for the group to reduce output quotas by
1 million barrels a day at the Cairo meeting, while OPEC President
Chakib Khelil has said the organization needs more time to evaluate the
effect of previous production cuts.
The group cut output by 1.5 million barrels a day last month.
"I
wouldn't be surprised if they announce a cut this Saturday," Rigby
said. "Anything they can do to get prices back up, they will. It will
have to be between 500,000 and 1 million to get the traders interested."
Investors
will also be eyeing Russia to see if the oil exporter joins OPEC in
cutting output. Russian Energy Minister Sergei Shmatko said this week
his county will support any production cut OPEC makes.
"They may
talk about it, but I'd be surprised if they actually did it," Rigby
said. "Russia wants all the benefits of what OPEC does to boost prices,
but I don't know if they really want to cut their production and their
revenue."
In other Nymex trading, gasoline futures fell half a penny
to $1.1750 a gallon. Heating oil dropped 3.07 cents to $1.706 a gallon
while natural gas for January delivery slid 9.7 cents to $6.781 per
1,000 cubic feet.
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