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27 February 2024

Oil dives $2 a barrel

New York oil prices dropped by more than $2 a barrel on Monday on expectations of prolonged weakness for energy demand, dealers said.

New York's main futures contract, light sweet crude for delivery in April, slumped $2.10 to $42.66  a barrel in electronic deals before the start of floor trading due later Monday.

In London, Brent North Sea crude for April shed $1.79 to $44.56 a barrel.

The market is particularly concerned about recession in the United States, the world's biggest energy consuming nation, and the effect is it having on oil demand.

"The momentum of economic data is looking down... the GDP numbers brought the reality that the (US) economy is weak," said Tony Nunan, assistant general manager of the risk management office at Mitsubishi Corporation.

Data released last Friday by the US Commerce Department showed a 6.2-per cent fourth-quarter contraction in gross domestic product.

The figure was far worse than the negative 5.4 per cent annual rate expected by most analysts and was the sharpest contraction since the first quarter of 1982.

Before the data was published, oil prices had surged last week in reaction to rising US stocks of motor fuel and indications of output cuts by the Organization of the Petroleum Exporting Countries, traders said.

Opec, which pumps about 40 per cent of the world's oil, announced in late 2008 output cuts of 4.2 million barrels per day in a bid to reverse tumbling prices, and members looked to be sticking to the planned reductions.

"Continued concerns over the state of the global economy and consequently demand for energy are likely to be balanced by good compliance from Opec and the possibility of another production cut when the group meets in Vienna later this month," wrote analysts at John Hall Associates.

"Therefore, we are minded to keep our forecasted range unchanged at $40 to $45 a barrel," they added in a research note to clients published on Monday.

Oil prices are more than $100 below record highs reached last July, when concerns about supply disruptions had sent them rocketing above $147 a barrel in New York and London.

They have since tumbled as demand for energy dries up globally amid world-wide recession.