VIENNA, Austria - Fears of a prolonged recession in developing countries and weak crude demand sent oil prices drifting below US$55 a barrel Tuesday.
Bearish news included Japan becoming the latest major economy to officially enter recession, and a further downward revision from OPEC regarding oil demand.
Light, sweet crude for December delivery slipped 55 cents to $54.40 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract Monday fell $2.09 to settle at $54.95, the lowest since January 2007. Prices have fallen about 62 per cent since reaching a record $147.27 in mid-July.
Stock markets, which oil investors use to gauge sentiment about the global economy, fell on mounting evidence that U.S. consumers are cutting spending as big corporations shed tens of thousands of staff.
The Dow Jones industrial average fell 2.3 per cent Monday, and Asian stocks were lower across the board Tuesday. Japan's benchmark Nikkei index fell 2.3 per cent, Hong Kong's Hang Seng index slid 5.1 per cent and the Korea Composite Stock Price Index dropped 3.9 per cent.
"We're hearing bad news every day," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "The market has priced in a recession in the developed countries and a slowdown in China so the uncertainty is how long and deep this recession will be."
Citigroup Inc. said it's cutting another 53,000 jobs in the coming quarters after announcing last month it would lay off 22,000 workers. Analysts forecast Wall Street could lose up to 200,000 jobs by year-end.
Retailer Target Corp. said profit fell 24 per cent in the third quarter and Lowe's Cos. predicted a fourth-quarter profit below the average analyst forecast.
"The $55 level has gotten some support," Shum said. "But downward pressure continues and we may approach $50."
The Organization of Petroleum Exporting Countries, which accounts for about 40 per cent of world crude supply, will have an informal meeting later this month, and some members are calling for another production cut on top of the 1.5 million barrels a day reduction the group announced last month.
OPEC will more likely reduce output quotas at it next official meeting on Dec. 17, Shum said.
"The cuts will not have much impact on pricing because the downward spiral has been due to recession fears and a substantial reduction in demand," Shum said. "However, the cuts will set up a price resurgence down the line when the economy finally recovers."
In a dramatic escalation of high seas crime, Somali pirates had seized a Saudi supertanker loaded with crude oil hundreds of miles (kilometres) off the coast of East Africa -- defeating the security web of warships trying to protect vital shipping lanes. But the seizure, reported Monday, had little effect on prices.
"At present everybody is thinking about the overall economy" and not the hijacking, said Ehsan Ul-Haq, chief analyst at JBC Energy in Vienna. But further seizures "could become a big problem," affecting prices, he said.
In other Nymex trading, gasoline futures fell by nearly two cents to $1.16 a gallon. Heating oil slipped by more than two pennies to $1.76 a gallon while natural gas for December delivery was flat at $6.53 per 1,000 cubic feet.
In London, December Brent crude dropped 33 cents to $51.98 on the ICE Futures exchange.
