UK recession erodes oil consumption

Oil yesterday fell $2 (Dh7.34) to below $42 a barrel as gloomy economic data gave fresh signs of the depth of the recession which has eroded oil consumption.

British data confirmed the economy had gone into recession for the first time since 1991, and Spanish unemployment surged to a nine-year high. General Electric Co posted a 44 per cent drop in quarterly profit.

US crude fell $2.02 a barrel to $41.65 by 14:37 GMT. Prices have rallied from below $33 a barrel earlier in the week. London Brent was $1.19 lower at $44.20 a barrel.

Prices bounced from near the session's lows after consultant Petrologistics said the Organisation of the Petroleum Exporting Countries (Opec) is sticking to its pledge to reduce output.

Opec supply, excluding Iraq, is expected to fall by 1.55 million barrels per day (bpd) in January, Petrologistics said. The reduction follows Opec's agreement in December to cut output by 2.2 million bpd from January 1, making total supply cuts of 4.2 million bpd since September, equal to five per cent of daily world energy demand. But Opec might need to reduce output again to support prices because global demand looks set to remain weak.

"We continue to believe that weak economic growth is likely to have a much greater impact on oil demand growth than is currently factored into consensus supply and demand forecasts," Deutsche Bank analyst Adam Sieminski said.

"We expect Opec will have to agree to make one more quota cut at their March meeting, chasing the moving target of oil demand," he said.

Oil dropped sharply at one stage after a surprisingly large rise in crude oil stocks in top oil consumer the United States last week. US crude inventories rose by 6.1 million barrels last week, well above forecasts for a 1.4 million barrel rise, and leaving them more than 40 million barrels above year-ago levels.

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