Crude oil tumbled more than 5 U.S. dollars a barrel to a 16-month low Wednesday as the falling energy consumption outweighed the near-certain production cut by OPEC this week.
Light, sweet crude for December delivery slid 5.43 dollars to settle at 66.75 dollars a barrel on the New York Mercantile Exchange (NYMEX). Futures dropped to 66.175 dollars a barrel during the trading, the lowest price since June 14, 2007.
In London, Brent crude shed 5.20 dollars to settle at 64.52 dollars a barrel on the ICE Futures Exchange.
Crude oil has declined about 55 percent from its July record high of 147.27 dollars a barrel due to investors' increasing concerns that a global economic recession could force consumers and businesses to further cut back on energy consumption.
Continuing weak demand
Oil's Wednesday slide was mostly prompted by the greater-than-expected increase in the U.S. fuel inventories. According to the weekly report of U.S. Energy Department Energy Information Administration (EIA), crude stockpiles jumped by 3.2 million barrels in the week ended Oct. 17, marking a fourth straight increase in the crude inventory.
Meanwhile, gasoline supplies rose by 2.7 million barrels, and stockpiles of distillates, which include diesel fuel and heating oil, increased by 2.2 million barrels. All numbers have far exceeded the market's previous forecast.
To make it even worse, the EIA report also revealed that the U.S. domestic gasoline consumption for the past four weeks averaged 8.8 million barrels a day, 4.3 percent down from the same period last year. Consumption of distillate fuel averaged 3.9 million barrels a day, 5.8 percent lower.
"Oil continued to tumble as market participants continue to embrace the sentiment that the U.S. and global economy is entering a recession. The result would be a net reduction in demand for the commodity," Wall Street Strategies' senior research analyst Conley Turner told Xinhua, "In fact, the report by the U.S. government this morning of a build in fuel supplies on served to underscore that sentiment."
OPEC production cut
OPEC's decision to bring forward an emergent meeting to October24 and prospects that it will announce production cuts have prompted a one-day rally in the oil price this Monday, when NYMEX crude closed at 74.25 dollars a barrel.
But crude oil still faces pressure from factors other than demand-supply fundamentals. A strengthening dollar has helped to push down oil prices. The greenback currency gained strongly recently against major currencies like the euro and sterling pound, as the U.S. credit market conditions began to pick up and investors speculated that the U.S. government might roll out another stimulus package in a bid to pull the economy out of a deep downturn.
"The entire energy complex has taken tumble and energy related securities are trading well off their highs," Turner said, "The interesting thing is that for all the fear that is apparent on a day to day basis, the companies that actually do the actual work of locating oil and getting it out of the earth are seeing an eventual recovery in the price of the commodity."
It was unsurprising that OPEC would cut crude output to avert the slumping price. OPEC President Chakib Khelil said Sunday that the organization believes the world oil market is oversupplied by about 2 million barrels a day. Khelil said OPEC may cut output again at a meeting in December in addition to a "substantial" output cut this month.
"A lot of volatility can be expected in the short term and everyone is makes guesses as to when and at what price stability is going to set in," Turner said, "For those with a long term horizon and intestinal fortitude, oil related securities can be very attractive here."
(Xinhua News Agency October 23, 2008)