LONDON // Oil slid below $37 a barrel on Wednesday, heading for a fall of more than 60 per cent in 2008 as the global economic slowdown bit deep into energy demand. At the same time the price of Dubai brand crude is expected to average US$50 per barrel (pbl) next year as sluggish economic growth affects consumption, the Korea Energy Economic Institute (KEEI) said Wednesday, according to a report by WAM. The South Korean state-run energy think tank said in a report that the average price for the Middle East benchmark crude may reach $51.9 for the whole of next year, lower than the $60 per barrel. Crude oil hit an all-time high of more than $147 in July but prices have collapsed in the last six months as the credit crisis has pushed the industrialised world into recession. Dismal data from the US on Tuesday added to pessimism that oil demand would suffer further in 2009, countering any support from Middle East tensions and hopes for another Saudi output cut.
Analysts forecast an average of $49 a barrel for US crude in the first quarter, and an average of $58.48 for next year, down $14 from their previous forecasts, the latest Reuters poll showed. US crude oil futures for February dropped to a low of $36.94 per barrel, down $2.09, before recovering slightly. London Brent dropped $2.05 cents to a low of $38.10 before rallying to $38.25 by 1156 GMT. "We expect energy prices to remain on the defensive through the early weeks of the New Year, presuming of course that the fighting in the Middle East does not spill over into other countries," MF Global said in a note to clients.
A dealer with a large US broker agreed: "The fundamentals of this oil market are horrible. Demand is falling and there seems no reason to buy," he said. "There is still plenty of room to go lower." Oil jumped as much as 12 per cent on Monday after Israel launched its air offensive on Gaza but prices slipped back quickly and analysts said they saw very little risk of the conflict disrupting oil supplies from the Gulf.
Foreign powers have stepped up calls on the warring parties to call an immediate ceasefire. The market focus is on the deteriorating economy. The US saw its worst job market in 16 years hammer consumer confidence to a record low in December, the shopping season was the worst since at least 1970, and prices of single-family homes in October fell a record 18 per cent from a year earlier. US retail petrol demand for the week ending Dec 26 dropped 3.8 per cent from the same week a year ago, as drivers tightened their belts over Christmas, a MasterCard survey showed.
Weekly US inventory data due later on Wednesday will give more clues on the impact on oil use. A poll of analysts forecast US crude stocks fell by 1.5 million barrels last week, while distillate inventories rose by 1.1 million and petrol increased by 1.5 million. Top Opec exporter Saudi Arabia is set to cut supplies further in February, market sources said on Tuesday, potentially taking output below its agreed Opec target.
With oil coming off more than $100 from its record peak midyear, Opec has announced its biggest-ever production cut of 2.2 million barrels per day to fight the price slide. The group already has cut output three times in an effort to remove about 5 per cent of world supply. The National Staff *Reuters