Oil fell more than 10 per cent,dipping below $33 a barrel on Tuesday after Russia and Ukraine agreed a gas deal that would help secure Europe’s supply,while gloomy economic news presaged weaker demand for oil products.
Russia and Ukraine are both ready to fully resume transit of Russian gas to Europe,they said. This meant that there would no longer be an increased need for oil products to replace gas.
US light crude for February delivery was 3.07 lower at $33.44 a barrel by 1017 GMT,having previously hit a new 2009 low of $32.70. There was no official settlement on Monday due to a US holiday.
The March contract,which takes over as front month on Wednesday,was down $2.93 to $39.64,and was more than $6.00 a barrel above the February contract due to brimming crude stocks at Cushing,Oklahoma,the delivery point for NYMEX contracts.
London Brent crude fell $1.03 to $43.47 a barrel,having closed $2.07 lower on Monday.
“The weak (US) contract is due in part to the Russian gas deal and the effect the gloomy economic picture has on demand. Weak sterling is also having an impact,” said Christopher Bellew of Bache Financial.
Economic uncertainty deepened after the Royal Bank of Scotland posted the biggest loss in the UK’s corporate history,with stock markets in Asia following European counterparts lower and Japan’s Nikkei index closing down 2.31 per cent.
Oil prices were also put under pressure by foreign exchange factors on Tuesday as the pound plunged to a seven-year low against the dollar on banking sector woes.
The United States was closed on Monday for the Martin Luther King holiday,and trade was thin,especially on the front-month February contract.
Oil prices have fallen by more than three quarters since record highs above $147 a barrel hit last July,as a financial turmoil has evolved into a global economic crisis and weakened oil demand.
Two recent supportive factors have been removed,after Russia and Ukraine signed their 10-year gas deal and a ceasefire between Israel and Hamas in Gaza eased fears of disruption to supply.
China,once a driver of the surge in oil prices,is expected to release this week fourth-quarter GDP data that economists say will show a 7.0 per cent growth,much higher than in the developed world,but the slowest pace of expansion for world’s third-biggest economy in nearly a decade.