US oil prices fell nearly 7 per cent to below $35 a barrel on Tuesday as grim economic indicators battered markets and raised concerns about slumping demand.
Worries that Eastern Europe’s hard-hit economies will drag down Western banks undercut global markets and US investors braced as two of Detroit’s Big Three automakers scrambled to submit restructuring plans.
US crude for March delivery settled at $34.93 a barrel,down $2.58 from Friday’s close. Floor trade on the New York Mercantile Exchange was shut on Monday for the US Presidents Day holiday,although there was electronic trade.
London Brent crude for April delivery dropped $2.25 to settle at $41.03 a barrel.
The credit crisis has pushed much of the world into recession,depressing fuel demand and sending crude oil prices down sharply from record highs above $147 a barrel in July.
“The economic outlook will continue to dominate the first half of 2009. The United States,eurozone and Japan are in synchronized recession,” Harry Tchilinguirian,oil analyst at BNP Paribas,said. “OPEC supply cuts are only going to impact consuming country inventories with a lag.”
Algerian Oil Minister Chakib Khelil reiterated that the Organization of Petroleum Exporting Countries would be more likely to cut oil production again in March,if prices remained below $40 a barrel.
Earlier,Iraq’s oil minister,Hussain al-Shahristani,said OPEC should look to further cuts in supply,if curbs to date fail to balance the market.
The producer group agreed to a series of deep output cuts during the second half of 2008 in order to help counter the drop in demand and prices.
US President Barack Obama signed a $787 billion economic stimulus bill into law as global markets plunged on fears that the recession would deepen despite government action in many countries.
Factory activity in New York state fell to a record low in February,with new orders and employment falling sharply as the US recession deepened.
“We are in the midst of a slow economy and staring at near-record crude oil inventories,so it’s hard to be bullish at this point,” said Phil Flynn,an analyst at Alaron Trading in Chicago.
US crude oil inventories have risen seven straight weeks,raising commercial supplies to more than 350 million barrels as of the week to Feb. 6,according to the most recent report from the US Energy Information Administration.
US crude for March delivery was trading at a steep discount to April crude,which settled at $38.54,due to high inventories at Cushing,Oklahoma,the delivery point for the US futures contract. Brimming US stocks are also keeping US crude at an atypical discount to Brent crude.
A Reuters poll of analysts ahead of weekly US inventory data forecast crude stocks rose by 2.6 million barrels in the week to Feb. 13,while gasoline and distillate stocks fell.
The forecasts were issued ahead of data to be released by the American Petroleum Institute on Wednesday and by the US Energy Information Administration on Thursday. Both reports were delayed a day by the US holiday.