LONDON // Oil prices slipped below $40 a barrel on Tuesday, weakened by evidence of falling oil demand as the world economy slows. Final third-quarter US gross domestic product data due later on Tuesday is likely to underscore the ailing economy as a series of stimulus measures and policy moves including China's fifth interest rate cut fail to halt a slide toward the worst recession in decades.
US crude for February delivery dropped 75 cents to $39.16 a barrel during intraday trade after falling 6 per cent on Monday. Volume was thin as traders sought to close out the worst-ever year for oil futures, which are now down almost 60 per cent since January. ICE Brent fell 66 cents to $40.79 a barrel. The tone was set by US stocks, which fell on Monday, reinforcing negative sentiment across other financial markets.
"The bears appear to be in control, aided by weak equity markets as the global economic slump offers a depressive ring to the festive period," said Rob Laughlin, senior oil analyst at MF Global in London. The most dramatic decline ever in Japanese exports has increased anxiety about the condition of the world economy. Signs that oil demand is likely to contract for the first time in a quarter century have already knocked oil prices over $100 off their July peaks.
Opec has cut about 5 per cent of world supplies to counter the collapse in demand, last week agreeing an unprecedented 2.2 million barrels per day reduction and appears ready to do more if needed. But oil traders believe that some of the output cuts promised by Opec will not materialise and are looking for evidence of improved compliance with the existing curbs. While Saudi Arabia cut output more before Opec's meeting two weeks ago, other major members have yet to show their hand. Sources with several Asian refiners said on Tuesday that they had not received any new notices as yet.
Surging demand from China and other emerging nations sent crude on a six-year rally to record highs over $147 a barrel in July before the economic crisis began to slow demand in top consumer the US and big economies. Now even the dynamic Asian economies appear to be suffering. Apparent oil consumption in China fell by 3.2 per cent in November from a year ago, the first decline in nearly three years, Reuters calculations confirmed this week, while crude imports into the world's No 2 energy consumer dropped to the lowest level this year.
Later on Tuesday traders will be looking for confirmation the US economy contracted by 0.5 per cent in the third quarter, in line with preliminary data. On Wednesday, weekly US oil inventory data is expected to show crude stocks rose by 300,000 barrels in the week to December 19, with distillate and petrol stocks also expected to have gained, according to an early Reuters poll of analysts. *Reuters