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22 February 2024

Oil falls below $90

By Agencies


Oil weakened below $90 a barrel on Friday, as bleak economic data intensified fears the United States would slip into a recession, hurting demand from the world's No.1 oil consumer.

Burgeoning oil stocks in the US, coupled with warmer weather in North America, also dampened prices.

US light crude for February delivery shaved off 38 cents to $89.75 a barrel, extending overnight losses of 71 cents on Thursday.

Oil has since tumbled about 10 per cent from its record-high of $100.09 a barrel reached on January 3, taking pressure off energy cartel OPEC to boost output at its next meeting in February.

London Brent crude was down 25 cents to $88.50 a barrel, having lost 75 cents the day before.

"There are concerns about the US economic outlook. There are other factors -- the weather conditions in North America are warm and there has been no significant demand for heating purposes," said Gerard Burg, analyst of National Australian Bank.

He said peak refinery maintenance in the US would also hurt crude oil demand.

Reflecting a worsening US economy, factory activity in the US Mid-Atlantic region contracted sharply in January and home building in December fell to the slowest pace since the early 1990s, according to government reports on Thursday.

The plunge in the Philadelphia Fed's manufacturing index, to negative 20.9 in January from minus 1.6 in December, heightened recession woes.

Housing starts were at an annual pace of 1.006 million units in December, lower than the 1.140 million units economists expected. It was the slowest pace for housing starts since the May 1991 rate of 996,000 units.

Federal Reserve Chairman Ben Bernanke said Thursday that more interest rate cuts may be necessary to counter the worsening economic outlook, but said the Fed has not forecast a recession.

On Thursday, oil contracts had earlier risen more than a dollar after Israel carried out a missile test, raising speculation it is developing a deterrent to Iran.

The February contract may see some short-covering and liquidation ahead of its expiry on Tuesday.


Rising oil stocks in the US also softened prices. US heating oil stocks were up 200,000 barrels last week, to 36.3 million barrels, according to the US EIA report, due to above-normal temperatures in the US Northeast.

Crude stockpiles in the US climbed 4.3 million barrels to 287.1 million barrels due to a gush in imports and the arrival of the US refinery maintenance season.

OPEC reacted coolly this week to a call from President George W. Bush for more oil output to bring down prices and ease strain on the economy.

OPEC President Chakib Khelil said there was no reason why the group should raise output at its next meeting on February 1 if oil inventories recovered in the second quarter, a time of year global consumption tends to slow.

He predicted prices will trade between $80 and $90 in the first quarter, but said forecasts for the rest of the year were difficult due to the possible impact of the credit crunch arising from the crisis over US subprime mortgages. (Reuters)