Oil falls towards $53 as demand woes back in focus

Business Materials 27 November 2008 12:31 (UTC +04:00)

Oil slipped toward $53 on Thursday, as investors fretted over falling oil demand after another set of bearish U.S. stocks and oil demand data, erasing some of the 7 percent gains on an equities rally a day earlier, reported Reuters.

The Dow Jones industrial average has risen 15.6 percent in the last four days, the largest four-day percentage gain since 1932, after Europe plotted a $200 billion stimulus plan, and China cut interest rates by the biggest margin in 11 years.

But oil fundamentals remained weak, with U.S. crude stocks rising sharply last week and U.S. September demand falling to its to its lowest level for any month in more than a decade.

U.S. light crude for January delivery fell $1.04 to $53.40 a barrel by 12:59 a.m. EST, off an earlier low of $53.14, erasing some of the $3.67 gains made on Wednesday.

London Brent crude fell $1.10 to $52.82.

"The global economic meltdown will continue to have a negative impact on demand, eventually pushing oil into the $40s before the year-end," said Jonathan Kornafel, Asia director of Hudson Capital Energy.

Oil has fallen by almost $100 a barrel since hitting a record peak above $147 a barrel in July as the global credit crunch dented demand in large consumer nations.

U.S. weekly crude stocks rose by a hefty 7.3 million barrels in the week ended November 21, well above forecasts for an 800,000 barrel increase, the U.S. Energy Information Administration (EIA) said on Wednesday.

Total U.S. product demand over the past four weeks was down 6.6 percent from year-ago levels, while September oil demand fell by 12.8 percent versus a year ago to its lowest in 12 years, the EIA also said.

Global demand is expected to decline by 20,000 barrels per day each in 2008 and 2009, the first drop in a generation, that would leave it at 86.01 million bpd then, a poll of analysts found on Wednesday.

Price support may come from OPEC's informal meeting in Cairo on Saturday.

"The surge in crude imports and stocks increases the odds of a decisive OPEC cut," said French bank Societe Generale in an overnight report.

OPEC may agree this week to cut production, Venezuelan oil minister Rafael Ramirez said on Wednesday, just days before a special meeting of the export group to study recent falls in crude prices.

Venezuela, a price hawk in OPEC, has pushed for OPEC to quickly decide to cut output by at least 1 million barrels per day.

Russian President Dimitry Medvedev called interesting a proposal by Venezuelan President Hugo Chavez for OPEC to set an oil price target band of $80-$100 a barrel.