Oil below $62 on recovery doubts
VIENNA: Oil prices slipped below the $62 a barrel mark Wednesday reflecting growing concerns over a slower-than-expected recovery in the global economy and OPEC predictions of a lasting crimp in world demand.
Prices were lower for the sixth straight day from a peak of above $73 last week, in tandem with continued weakness in Asian stock markets and a stronger U.S. dollar.
Benchmark crude for August delivery fell $1.06 to $61.87 by afternoon in European electronic trading on the New York Mercantile Exchange. On Tuesday, the contract fell $1.12 to settle at $62.93.
"Worries about the state of the global economy and that the recovery won't be fast enough are causing both the equities and oil markets to tumble," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
The global economic data — from rising unemployment to plunging exports — is still grim and most economists think the nearly two-year long recession has not yet bottomed out.
OPEC's annual report on supply and demand reflected expectations of continuing weak demand
The 12 nation organization said that demand for its crude has fallen so sharply because of the world recession that it will take another four years to recover to 2008 levels.
OPEC meets more than a third of the world's annual oil demand, which the International Energy Agency has put at nearly 86 million barrels a day for 2008 — about 2.5 million barrels more than for recession-ridden 2009.
In its annual report, the organization said the world would need 87.9 million barrels of crude a day by 2013 — nearly 6 million barrels less than previously expected. Of that, said the report, OPEC would need to produce 31 million barrels a day, compared to a daily 31.2 million barrels last year.
Unemployment in Europe surged in May to a 10-year high with more than 15 million people out of work. In the United States, the jobless rate jumped to a 26-year high of 9.5 percent in June as U.S. employers cut a larger-than-expected 467,000 jobs.
"Economic news remains mixed, with stock markets also losing ground," noted Vienna's JBC Energy, in linking the fall in crude to concerns that the world recession still has some ways to go. "Calls for a second U.S. economic stimulus package by a member of the U.S. president's economic advisory panel were also taken as a negative sign for the status of the country's economy."
Shum said oil prices face continuous downward pressure and may drop to below $50 a barrel in the coming weeks.
"So far there is no clear evidence of oil demand returning. Prices at $60-$70 a barrel for oil is way too expensive given the weak state of oil demand," he said.
Stockpiles of gasoline have increased steadily for the past four weeks during a time when traffic volumes usually peak. Supply data coming from the Department of Energy on Wednesday is expected to show that trend continuing.
In its short-term outlook released Tuesday, the department said it expects consumption of liquid petroleum to shrink 3.3 percent this year. Still, it expects oil to average about $70 per barrel for second half of the year.
Oil prices have doubled since the beginning of the year and that volatility has brought increased scrutiny from Washington. Federal regulators said Tuesday they would examine whether the government should impose limits on the number of futures contracts in oil and other energy commodities held by speculative traders.
Investors have plowed millions into exchange-traded funds like the United States Natural Gas Fund. The funds allow individuals to buy shares that track commodities like natural gas.
In other Nymex trading, gasoline for August delivery slid by more than 3 cents to $1.70 a gallon and heating oil lost nearly 3 pennies to fetch $1.57. Natural gas for August delivery was down more than 8 cents at $3.35 per 1,000 cubic feet.
In London, Brent prices shed 89 cents to $62.34 a barrel on the ICE Futures exchange.