Crude Oil Falls Below $90 on Concern Economic Growth Will Slow

By Margot Habiby and Robert Tuttle


Nov. 30 (Bloomberg) -- Crude oil fell below $90 a barrel in the biggest weekly loss in two and a half years on concern slowing economic growth will cut energy demand, and as Saudi Oil Minister Ali al-Naimi said supplies in the market are ``ample.''

Consumer spending in the U.S., the world's biggest oil user, rose less than forecast in October and incomes increased at the slowest pace in six months, the Commerce Department said in Washington today. Al-Naimi, speaking in Doha, said oil prices don't reflect actual production and consumption trends.

``The market is simply becoming more concerned about a possible recession that could reduce petroleum demand,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``We have been seeing evidence for some time of a weakening economy and weakening oil demand.''

Crude oil for January delivery fell $2.30, or 2.5 percent, to settle at $88.71 a barrel at 2:45 p.m. on the New York Mercantile Exchange. Futures touched $88.45 a barrel, the lowest since Oct. 25. Oil has dropped 9.7 percent this week, the biggest weekly loss since April 2005. Prices climbed to a record $99.29 a barrel on Nov. 21.

Average U.S. consumption of oil products, such as gasoline and diesel, over the four weeks ended last week was 0.5 percent lower than a year ago, according to U.S. Energy Department data.

The U.S. dollar recorded its largest weekly gain against the euro since August, pressuring oil prices which rose earlier in the month on the currency's weakness. The dollar strengthened after Federal Reserve Chairman Ben S. Bernanke yesterday signaled he may lower interest rates to bolster growth. The yen had its biggest weekly drop in almost three years.

Oil surged above $95 a barrel yesterday after an Enbridge Inc. crude oil pipeline in Minnesota exploded on Nov. 28. Enbridge said operations will return to normal within three days.

Lower Prices

The pipeline blast seems to be ``just a near-term support,'' said Eric Wittenauer, an analyst at A.G. Edwards & Sons Inc. in St. Louis. ``As the details and extent of the damage and timeline for recovery came to light, it ended up pushing prices lower.''

The Enbridge pipeline blast killed two workers and cut shipments that average 1.5 million barrels a day. The pipelines transport oil to U.S. refiners, including BP Plc's plant in Whiting, Indiana, and facilities along the Gulf Coast. The U.S. imported 10.3 million barrels a day last week.

Brent crude oil for January settlement fell $1.96, or 2.2 percent, to $88.26 a barrel, the lowest since Oct. 30, on the ICE Futures Europe exchange in London.

Thirteen of 27 analysts surveyed by Bloomberg News, or 48 percent, said oil will drop through Dec. 7. Nine, or 33 percent, said prices will rise and five forecast little change. Last week, 43 percent of respondents said oil would fall.

January Options

Bets that January crude oil will fall below $85 a barrel were the most actively traded options contracts on the Nymex today. The put contracts, which represent the right to sell oil at that price, rose 55 cents to $1.13, or $1,130 per contract, according to data compiled by Bloomberg as of 4 p.m. New York time. One options contract is for 1,000 barrels of oil.

OPEC raised shipments 2 percent to 24.53 million barrels a day in the four weeks to Dec. 15, according to consulting company Oil Movements.

Saudi Arabia, OPEC's biggest producer, is adding 500,000 barrels of spare capacity in December to ensure that consumers are adequately supplied. The country is producing 9 million barrels a day, al-Naimi has said.

``They will probably give us a token production increase and, by that time, it will be well discounted,'' Ritterbusch said.