Sunday, November 16, 2008

Crude Oil Falls as Global Slowdown Cuts Demand in China, Japan

By Gavin Evans and Christian Schmollinger

Nov. 17 (Bloomberg) -- Oil fell for a second day in New York on signs the global slowdown is limiting demand in China and Japan, the world's second- and third-largest crude users.

Japan entered the first recession since 2001 as its gross domestic product fell an annualized 0.1 percent in the three months ended Sept. 30 after shrinking 3.7 percent in the previous period. China National Petroleum Corp., the country's biggest oil producer, said demand has contracted ``sharply'' since September because of the global credit crisis.

``There doesn't seem to be much out there to stop the fall in prices,'' said Toby Hassall, research analyst at Commodity Warrants Pty in Sydney. ``Weak demand and a pretty bleak demand outlook'' may push oil prices as low as $50 this week, he said.

Crude oil for December delivery dropped as much as $1.44, or 2.5 percent, to $55.60 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $55.73 at 9:35 a.m. in Singapore.

The contract slumped 2.1 percent to settle at $57.04 on Nov. 14, having touched $54.67 the previous day, the lowest since Jan. 30, 2007. Prices declined 6.6 percent last week as world equity markets dropped, Germany entered its worst recession in 12 years and U.S. retail sales fell for a fourth straight month.

Economists had predicted Japan's economy would rebound 0.1 percent in the September quarter. Japan used 5.1 million barrels a day in 2007, according to the BP Statistical Review of Energy. China used 7.9 million barrels a day.

IEA Cuts Forecast

The slowdown in demand because of the credit crisis caused stockpiles in the country to increase ``significantly,'' China National Petroleum said in a statement on its Web site.

``As the impact of the financial crisis on China's economy deepens, the company's operations have also been affected adversely,'' the statement said.

The International Energy Agency last week slashed its global oil consumption forecast for 2009 by 670,000 barrels a day. Demand will rise 0.4 percent to 86.5 million barrels a day, with growth in emerging nations partly offsetting a 1.6 percent contraction in fuel use in developed economies, the Paris-based agency said.

Brent crude oil for January settlement fell as much as 99 cents, or 1.8 percent, to $53.25 a barrel on London's ICE Futures Europe exchange. It was at $53.32 a barrel at 9:37 a.m. Singapore time. The contract fell 3.6 percent to $54.24 a barrel on Nov. 14.

Traders Net-Short

Hedge-fund managers and other large speculators increased their net-short position in New York crude-oil futures in the week ended Nov. 11, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 52,984 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 42,441 contracts, or 403 percent, from a week earlier.

OPEC is likely to wait until December before cutting output again, the group's president, Chakib Khelil, said in Algeria yesterday.

Saudi Arabia, the world's biggest oil producer and the largest member in OPEC, will help alleviate global financial stress by maintaining stable oil markets, King Abdullah said after a meeting of Group of 20 leaders in Washington Nov. 15.

Iran Seeks Cuts

Iran, OPEC's second-largest producer, may seek a production cut of as much as 1.5 million barrels a day when the group meets in Cairo later this month, the Associated Press reported Nov. 15, citing televised comments by the nation's OPEC Governor Mohammad Ali Khatibi.

The group, which pumps about 40 percent of the world's oil, cut output by 1.5 million barrels a day last month. It will have more information on which to make a decision on further cuts at the Dec. 17 meeting in Oran, Algeria, Khelil said yesterday.

``We have yet to see the full cut from the previous meeting implemented at this stage,'' Commodity Warrants' Hassall said. ``Compliance is always going to be an issue.''

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