Oil falls towards $38 as demand weakens
Oil fell toward $38 a barrel on Wednesday on expectations that deepening global recession would reduce oil demand, reported Reuters.
Sharp falls in the world's stock markets and a stream of bearish economic data kept oil prices near 4-1/2-year lows ahead of the Christmas and New Year holidays.
U.S. light crude for February delivery fell 94 cents to a low of $38.04 a barrel before recovering a little to $38.12 by 6:05 a.m. EST.
London Brent crude fell $1.10 to $39.26 a barrel.
Stock markets again set a bearish trend with the Dow Jones industrial average closing down 1.2 percent and Japanese equities following suit after a raft of negative economic data.
"Oil prices continue to fall on the coat tails of equity markets and the trend suggests this will continue into the New Year," said Rob Laughlin, senior oil analyst at MF Global.
Oil prices have fallen about 60 percent since the start of this year and tumbled more than 70 percent since their record peak above $147 in July as demand from the United States, China, Japan and other industrialized nations has fallen.
The Organization of the Petroleum Exporting Countries (OPEC) has already announced cuts of 5 percent in global oil supplies and may call an emergency meeting before March if prices extend their near $110-per-barrel slide since summer, OPEC's President Chakib Khelil said on Tuesday.
Oil was buoyed on Wednesday by a dip in the dollar, which edged down against the yen, pressured by light selling from Japanese exporters after dismal U.S. growth and housing data suggested a prolonged recession ahead.
The euro also rose versus the dollar on cooling expectations for a euro zone interest rate cut in January.
But forecasts that U.S. government data would show a build in crude stocks for the third-straight week by 400,000 barrels weighed on prices.
Data due later on Wednesday is also expected to show distillate stocks rose 200,000 barrels last week, while gasoline is seen up 500,000 barrels, a Reuters poll showed.
U.S. government data on Tuesday showed the world's largest economy shrank 0.5 percent in the third quarter as a credit and housing crisis took hold. Consumer spending plunged 3.8 percent, the deepest fall since 1980.
The UK economy shrank 0.6 percent in the third quarter, its first decline since the early 1990s, and data also showed recessions taking root in Spain and New Zealand.
The U.S. Energy Information Administration expects world oil demand to shrink in 2008 and 2009 due to the financial turmoil, marking the first declines since 1983.
But OPEC Secretary-General Abdullah al-Badri sounded an optimistic note in remarks published in the pan-Arab al-Hayat newspaper on Wednesday, saying oil prices would recover in the second half of 2009 and were likely to reach $75 a barrel in early 2010.
Badri said he expected OPEC producers to adhere to supply cuts agreed by the group despite doubts in the market about compliance.