Oil falls below $40 as Middle East concerns ease
Oil fell below $40 on Tuesday as demand concerns overshadowed Middle East crude supply fears amid the Israeli-Hamas conflict, with prices on track to end the year down 60 percent, their biggest annual loss on record.
Crude jumped as much as 12 percent on Monday after Israel launched its fiercest air offensive in the Hamas-ruled Gaza strip in decades and prepared for a ground assault, raising fears that enraged Arab crude-producing neighbors would react, reported Reuters .
By 12:04 a.m. EST, U.S. crude was down 24 cents at $39.78 a barrel, after having gained almost 1 percent earlier in the day. London Brent fell 34 cents to $40.21.
Oil is heading for a loss of nearly 60 percent this year, its biggest annual fall since futures began trading 25 years ago.
"People are still wary of the global economic problems. There is still pessimistic news coming out of the States," said Gerard Rigby, an analyst at Fuel First Consulting in Sydney.
Traders will look out for the U.S. Conference Board's December consumer confidence report later in the day for fresh indications of U.S. economic health.
Despite the gloomy outlook for the economy and oil demand, crude oil speculators on NYMEX boosted net long positions in the period between December 16 and December 22 to their highest since mid-May, data from the U.S. Commodity Futures Trading Commission showed on Monday.
"I'll keep an eye on stocks and the dollar as well," Rigby said.
The Middle East conflict weighed on the greenback, giving upside support to dollar-denominated assets, including oil and other commodities.
Four days of Israeli bombardment have killed more than 300 Palestinians, while at least three Israelis were killed in retaliation by Islamist militants in Gaza on Monday.
But economic worries continue to cap oil gains, with Wall Street sliding on Monday after a failed $17-billion joint venture between Kuwait and Dow Chemical threatened to unravel Dow's planned takeover of Rohm & Haas, one of the year's larger merger deals.
The economic slump has hit fuel consumption worldwide, bringing crude prices down more than $100 a barrel from a peak of more than $147 touched in July.
OPEC agreed its biggest-ever production cut of 2.2 million barrels per day (bpd) in December to fight the market's slide. The cartel has cut output three times in an effort to remove about 5 percent of world supply.
Ecuador said it would monitor oil markets after OPEC makes effective its January output cuts, to decide whether to back another emergency meeting by the oil cartel.
But even as OPEC moves to reduce supply, non-OPEC oil exporter Oman's oil minister said the country would boost oil production in 2009 to about 810,000 bpd from 750,000 to 760,000 bpd this year.