Oil slips on global recession fears

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Posted on October 15th, 2008 by admin
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VIENNA: Oil prices slid Wednesday on concerns that a massive bank bailout by the U.S. and Europe won”t keep the global economy from slipping into a severe slowdown.

Beyond fears that demand would slow, expectations that the latest snapshot of U.S. crude supplies would show additional builds also weighed on markets.

Light, sweet crude for November delivery was down US$2.09 toUS$76.54 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. The contract fell US$2.56 overnight to settle at US$78.63.

“People are worried that the world economy is heading for recession,”” said Gerard Rigby, an energy analyst at Fuel First Consulting in Sydney. “The bailout may save the banks, but companies are still laying off workers and demand is going to suffer.””

The latest OPEC report on the state of oil markets reflected the extent of the downturn in developing countries while showing that appetite for crude remained robust elsewhere.

While total oil consumption dropped in developing countries by more than 1 million barrels a day as of September over a 12 month period, demand growth from developing countries increased by a daily1.2 million barrels over the same time, said the Organization of Petroleum Exporting Countries.

For next year, developed nations are expected to need only400,000 barrels a day more oil than this year, whereas demand from developing countries will increase by an estimated 1.1 million barrels, with most of that growth coming from China, the Middle East and India, said the OPEC report.

The U.S. plans to spend as much as US$250 billion this year of aUS$700 billion bailout buying stock in private banks, President George W. Bush said Tuesday. Governments across the globe have pledged more than US$3 trillion to prop up ailing banks in a bid to stabilize a credit crisis that began last year in the U.S. sub-prime mortgage market.

Former U.S. Federal Reserve Chairman Paul Volcker said Tuesday the U.S. and Europe face a “considerable recession.””

“The banks might be ok, but the rest of the economy needs help as well,”” Rigby said.
Such pessimistic voices are strengthening expectations that crude prices still have some way to go before they bottom out. Trader and analyst Stephen Schork suggested that US$50 “is now within the realm of possibilities.””

Investors are also watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Thursday from the U.S. Energy Department’’s Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose3.1 million barrels last week, according to the average of analysts” estimates in a survey by energy information provider Platts.