Oil Is Poised for Worst Month Ever on Concern Over Demand Drop

By Mark Shenk and Margot Habiby


Oct. 31 (Bloomberg) -- Crude oil in New York was poised for its biggest monthly drop since trading began in 1983 on concern that the decline in the U.S. economy will further curb fuel demand in the world's largest energy consuming country.

Oil retreated after the U.S. Commerce Department said yesterday that gross domestic product contracted at a 0.3 percent annual pace in the third quarter, the most since 2001. UBS AG cut its oil-price forecast for next year by 43 percent to $60 a barrel from $105 because the global economic slowdown may reduce demand.

``Views about the economy have been the primary movers of the energy market since July,'' said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington. ``Just about everyone agrees that the U.S. is in a recession. What is contestable is how bad it will be.''

Crude oil for December delivery lost 76 cents, or 1.2 percent, to $65.20 a barrel at 10:37 a.m. Sydney time on the New York Mercantile Exchange. Oil has slumped 35 percent this month and may pass February 1986 as the worst month ever, when it dropped 30 percent to $13.26 a barrel.

Prices, which have tumbled 56 percent since reaching a record $147.27 on July 11, are down 31 percent from a year ago. Futures dropped $1.54, or 2.3 percent, yesterday to settle at $65.96 a barrel, after touching $70.60, the highest since Oct. 22, in intraday trading.

Rate Cuts

Oil climbed more than $4 a barrel Oct. 29, the biggest gain in a month, after the U.S. and China, the two biggest energy consumers, cut interest rates to spur economic growth. Prices also rose because the dollar fell the most against the currencies of six major U.S. trading partners since 1998.

``The GDP number is a reminder that the economy, and with it energy demand, won't be recovering anytime soon,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. After the rally, ``the focus is returning to fears about demand destruction.''

U.S. fuel demand during the past four weeks averaged 18.9 million barrels a day, down 7.8 percent from a year ago, an Energy Department report showed Oct. 29.

``It took a while before we felt the full impact of high prices on demand, there's usually a six-month lag,'' Sieminski said. ``Now, we are waiting to see what the full impact of falling incomes will be.''

The Organization of Petroleum Exporting Countries increased oil supplies 0.5 percent this month because of higher exports from Iraq, according to provisional data from Geneva-based consultants PetroLogistics Ltd.

OPEC Supplies

The group supplied 31.85 million barrels of oil a day in October, up 150,000 barrels a day from September, PetroLogistics founder Conrad Gerber said in a telephone interview yesterday. Higher Iraqi output countered declines from Saudi Arabia, Kuwait and the United Arab Emirates.

OPEC may curb only 850,000 barrels a day of oil supply by January, PFC Energy said in a report yesterday. PFC expects Saudi Arabia to cut 600,000 barrels a day, the Washington-based oil consultant said. OPEC reduced its target by 1.5 million barrels a day after an emergency meeting Oct. 24.

Brent crude oil for December settlement declined $1.76, or 2.7 percent, to settle at $63.71 a barrel yesterday on London's ICE Futures Europe exchange. Futures earlier touched $68.35, the highest since Oct. 22.

Exxon Mobil Corp. and Royal Dutch Shell Plc, the world's biggest oil companies, posted gains in third-quarter earnings after crude oil's surge to a record made up for slumping output.

Exxon Mobil netted $14.8 billion, up 58 percent from a year earlier, according to a statement yesterday by the Irving, Texas-based company. Profit excluding one-time costs and gains was the highest ever for a U.S. corporation. Shell, based in the Hague, said its net income rose 22 percent to $8.45 billion. Both companies exceeded analyst earnings estimates.