Oil prices fall with global stock markets

By DIRK LAMMERS
The Associated Press

11/19/2008

SIOUX FALLS, S.D. — Oil slipped below $54 a barrel Wednesday as stock markets across the globe fell and yet another U.S. government report showed how badly the housing market has been hit.

Governments, businesses and consumers cut back on energy use when the economy slows and crude prices reflected those perceptions.

Light, sweet crude for January delivery traded down 66 cents at $54.10 a barrel on the New York Mercantile Exchange after falling to a 52-week low of $53.66.

Consumer prices plunged by the largest amount in the past 61 years in October as gasoline pump prices dropped by a record amount.

The Labor Department said Wednesday that consumer prices fell by 1 percent last month, the biggest one-month decline on records that go back to February 1947. The drop was twice as large as the 0.5 percent decline analysts expected.

Construction of new homes and apartments fell by 4.5 percent in October to an annual rate of 791,000 units, the Commerce Department reported. It was the slowest construction pace on records going back to 1959.

Supply disruptions that once roiled markets have not slowed crude’s decline.

“Even reports of renewed rebel activity in Nigeria are not enough to spur a rally,” Addison Armstrong, director of market research at Tradition Energy, said in a morning note.

Chevron Corp. invoked “force majeure” Tuesday on 90,000 barrels a day of its Nigeria gross production after a pipeline was breached by militants in the Niger Delta.

Oil prices have fallen 63 percent since reaching a record $147.27 a barrel in mid-July.

Crude, at least so far this week, is not posting the huge price swings that have dominated the market for the past month.

“Market sentiment is still bearish, but not as bearish as a week ago,” said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. “Volatility has come down and the market is consolidating a bit.”

The Energy Department’s Energy Information Administration reported Wednesday that crude inventories rose by 1.6 million barrels last week to 313.5 million barrels after stagnating in the prior period.

Analysts had expected a boost of 1.2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Trader and analyst Stephen Schork noted that past report patterns reflected supply outstripping demand.

“Over the last six reports stocks have bounced back by 7 1/2 percent,” he wrote in his Schork Report. “Meanwhile, year-on-year demand for total oil products fell for the 41st week (out of 45) this year, i.e. 10 out of every 11 weeks.”

Gasoline inventories rose by 500,000 barrels, or 0.3 percent, to 198.6 million barrels, which is 1.3 percent below year-ago levels. Analysts expected stockpiles of the motor fuel to rise by 700,000 barrels.

Demand for gasoline over the four weeks ended Nov. 14 was 2.2 percent lower than a year earlier, averaging 9 million barrels a day, the EIA said in its weekly report.

Compared with summer highs, that has lead to huge breaks at the pump.

Gasoline prices have fallen more than 50 percent since hitting a record national average of $4.11 early in July.

The average price for a gallon of regular unleaded on Wednesday dipped a couple of cents to $2.047, according to auto club AAA, the Oil Price Information Service and Wright Express.

Stock markets have served for the past few months as a barometer of investor perceptions about the health of the global economy.

The Dow Jones industrial average fell more than 100 points Wednesday morning and most Asian stocks fell as well. Japan’s benchmark Nikkei index fell 0.7 percent, Hong Kong’s Hang Seng index dropped 0.5 percent and the Korea Composite Stock Price Index slid 1.9 percent. European markets also down across the board.

Oil investors have already priced in a recession in developed countries and only evidence of an especially severe or prolonged slowdown may push prices down further, Chu said.

Analysts suggested that prices might be bottoming out as they moved closer to the psychologically significant $50 mark.

“I don’t see oil falling below $50,” Chu said. “It should be above $60 in a couple weeks.”

The Organization of Petroleum Exporting Countries is holding an informal meeting later this month ahead of its regular December meeting. OPEC President Chakib Khelil has said the group will wait until the effects of a 1.5 million-barrel-per-day production cut plays out and that another cut on Nov. 29 is unlikely.

More hawkish OPEC members like Iran have called for immediate production cuts and some analysts believe they may get them if oil falls below $50.

In other Nymex trading, gasoline futures slipped 1.1 cents to $1.1258 a gallon. Heating oil rose 1.8 cents to $1.7759 a gallon while natural gas for December delivery rose 1.85 cents to $6.701 per 1,000 cubic feet.

In London, January Brent crude rose 21 cents to $52.05 on the ICE Futures exchange.

Associated Press writers George Jahn in Vienna, Austria, and Alex Kennedy in Singapore contributed to this report.

Dorothy Cox of The Trucker staff can be reached for comment at dlcox@thetrucker.com.