Monday November 17, 09:54 PM
Oil prices sink on growing worries about demand
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NEW YORK (AFP) - Oil prices sank Monday amid worries about a deepening global financial crisis that is crimping demand, stoked by news that Japan, the second-largest economy, has followed the eurozone into recession.
Light (LIGT3.SA - news) sweet crude for delivery in December closed at 54.95 dollars a barrel on the New York Mercantile Exchange (NYMEX), down 2.09 dollars from Friday's closing level.
In London, Brent North Sea crude for January fell 1.93 dollars to settle at 52.31 dollars on the InterContinental Exchange.
"We've seen tremendous volatility during the day," said Andy Lipow, analyst at Lipow Oil Associates.
"It's all about demand."
The oil market digested news that Japan's economy slipped into recession in the third quarter as companies slashed investment to weather the financial crisis.
Official data showed Monday that the Japanese economy contracted 0.1 percent in the three months to September, shrinking for a second straight quarter and meeting the technical definition of a recession.
On Friday, the European Union said the 15-nation eurozone had entered recession for the first time since its creation in 1999.
In the United States, where demand is falling in the world's biggest energy consumer, ailing banking giant Citigroup (NYSE: C - news) said it would cut 50,000 jobs worldwide and slash spending as it struggles with the economic downturn.
"When I come in these days I wonder how many job layoffs are going to be announced," Lipow said.
"Since these announcements are continuing that translates into lower demand in the future," he said. "That is the overwhelming concern."
The Organization of the Petroleum Exporting Countries on Monday slashed its demand growth forecasts, citing "world economic turmoil" in its November monthly report.
OPEC now sees demand growth in 2008 of 0.33 percent, revised down from 0.64 percent forecast in October; the 2009 demand projection was reduced to 0.57 percent from 0.87 percent.
"Demand (for energy) looks poor because of severe contractions in economic activity worldwide," said Cameron Hanover analyst Peter Beutel.
OPEC said that "closer monitoring and more frequent intervention are required."
The oil cartel is to hold an extraordinary meeting on November 29 in Cairo amid speculation that member nations will agree to cut output again in a bid to boost plunging oil prices.
OPEC agreed on October 24 to reduce production by 1.5 million barrels per day from November 1.
Oil prices have plunged almost two-thirds since striking record highs of above 147 dollars in July as a global economic slowdown dents world energy demand.
In Iran, OPEC's number-two oil producer, state television reported on Saturday that the country backs a new OPEC output cut of 1.0-1.5 million barrels a day.
According to Phil Flynn at Alaron Trading, prices are being hit by concerns about demand destruction in China, which he called "the biggest driver of oil demand growth this past decade."
The country's largest oil producer, China National Petroleum Corp., said its inventories were surging amid the global economic downturn.
"So if China demand is slowing and Japan is in a recession, then where is the demand growth going to come from?" said Flynn.
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