Crude Oil Falls Below $40

Crude oil fell below $40 in New York on concern production cuts by the Organization of Petroleum Exporting Countries will fail to counter a slump in demand., Bloomberg 1/12/2009 5:24:15 AM

Oil consumption will fall by 1 million barrels a day this year as the U.S., Europe and Japan face their first simultaneous recessions since the Second World War, Deutsche Bank AG predicted last week. U.S. stockpiles have climbed in 13 of the past 15 weeks, according to the Energy Department. OPEC members signaled last week they will curb sales to refiners in February.

Crude oil for February delivery fell as much as $2.40, or 5.9 percent, to $38.43 a barrel in electronic trading on the New York Mercantile Exchange. It was at $38.52 a barrel at 11:28 a.m. in London.

China, the fastest-growing oil consumer, may miss the government’s 8 percent economic growth target, two top officials said today. Oil prices fell 12 percent last week as economic data showed the economic slump worsening. On Jan. 9, the U.S. said it lost 2.589 million jobs last year, the most since 1945.

OPEC, supplier of more than 40 percent of the world’s oil, agreed last month to slash production quotas by 9 percent to revive prices as the global recession erodes demand. Oil has plunged more than $100 in the last six months.

Saudi Aramco, the world’s biggest state oil company, sent notices to refiners in Asia on Jan. 9 that it would lower crude supplies to Asia by around 10 percent in February. This was the third month the company had reduced sales.

OPEC may trim production further should crude prices continue to decline, Iran’s OPEC Governor Mohammad Ali Khatabi said Jan. 11. OPEC is scheduled to meet next in Vienna on March 15. Iran is the group’s second-largest producer, after Saudi Arabia.

Oil for March delivery is at a more than $5 a barrel premium to the front-month contract, while the April future is $9 above February-delivered supplies. The situation where near- term crude is cheaper than later-dated oil is called contango.

Oil for February dropped last week as stockpiles at Cushing, Oklahoma, the delivery point for crude traded at Nymex, climbed to 32.2 million barrels, the highest since the U.S. Energy Department started tracking the supplies in 2004. Total capacity in the area is about 47.7 million barrels, according to estimates from Andy Lipow at Houston-based consultants Lipow Oil Associates LLC.

Brent crude for February settlement fell as much as $2.02, or 4.6 percent, to $42.40 a barrel on London’s ICE Futures Europe exchange. It was at $42.54 a barrel at 11:29 a.m. London time.

Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended Jan. 6, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 76,658 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 12,110 contracts, or 19 percent, from a week earlier.