UPDATE: Another economic report, another drop; oil settles at $63.91

After trading above $69 per barrel, light, sweet crude for December delivery tumbled $3.87 to settle at $63.91 on the New York Mercantile Exchange.

By JOHN PORRETTO
The Associated Press

11/3/2008

HOUSTON — Concern over the health of the global economy pushed oil prices lower Monday with few signs of increased demand for crude as nations from the United States to Asia try to dodge a recession.

A report Monday from the Institute for Supply Management suggested to some U.S. economists that it is too late.

The ISM manufacturing index fell to 38.9, the lowest reading since September 1982. Any reading below 50 signals contraction.

Declining gasoline futures have led to sharp drops in the price of gasoline. The price for a regular gallon of gasoline dropped to $2.41 nationally on Monday, down more than 30 percent from last month, according to auto club AAA, the Oil Price Information Service and Wright Express.

Oil industry analysts had believed that the booming economies of India and China would pick up any slackening of demand if Western nations went into recession. That view has weakened in recent months.

In a report Monday, Credit Suisse forecast the sharpest drop in global oil demand since 1982.

And Credit Suisse analyst Mark Flannery said the latest economic data from China reveals a slowdown that is far worse than originally forecast.

Credit Suisse, in a research note, reduced its estimates for 2009 Chinese oil demand growth from 4 percent to near zero. It predicts some recovery in 2010, back to 5.4 percent.

"A slower China means a slower global economy," Flannery said in the report, noting he's also made reductions to his forecasts for other parts of Asia and the Middle East.

Declining expectations for demand come after the largest single monthly price drop for crude since futures were first traded on Nymex 25 years ago.

In a note to clients Monday, Raymond James & Associates said the continued downward pressure on oil is partly the result of investor worries at the global level, "but tomorrow's U.S. presidential election may alleviate some of the uncertainty by providing more clarity around future government policies."

The U.S. Commerce Department last week said the economy shrank 0.3 percent in the July-September quarter, the worst showing for the world's largest economy in seven years.

Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore, said he saw continued "downward volatility in oil futures."

"I expect oil to trade within the $60-$70 range in the near term," Shum said. The U.S. employment data due later this week is likely to underline the economy's weakness and will cap gains in oil prices, he said.

That report is due Friday.

Oil prices have fallen about 54 percent since peaking above $147 a barrel in mid-July. In October alone, crude prices tumbled 32 percent.

Declining prices comes despite a 1.5-million barrel production cut by the Organization of the Petroleum Exporting Countries, a group of oil exporting countries that accounts for 40 percent of global crude production.

Venezuela's Oil Minister Rafael Ramirez has said OPEC will need to cut production by at least another 1 million barrels daily to stop the fall.

Opinion, however, is mixed on whether all members of the cartel will follow through on the cuts — or keep churning out as much crude as they can on fears that prices will plummet even more.

Shum said OPEC's recent output cut offset the decline in demand but a second cut may help tighten supply in the market and support oil prices in the long run.

In other Nymex trading, gasoline futures slipped more than 10 cents to $1.39 a gallon. Heating oil fell 8.7 cents at $1.99 a gallon and natural gas for December delivery dropped 16 cents to fetch $6.62 per 1,000 cubic feet.

In London, December Brent crude fell $3.04 to $62.28 a barrel on the ICE Futures exchange.

Associated Press writers George Jahn in Vienna and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.