Oil prices dips below US$42 a barrel on anemic global economy

Source: Agencies  |   2008-12-10  |     NEWSPAPER EDITION

OIL prices dipped below US$42 a barrel yesterday afternoon amid new reports the anemic global economy will lead to an even sharper falloff in energy consumption through 2009.

Energy demand has eroded rapidly as businesses and consumers slash spending.

At the New York Mercantile Exchange, light, sweet crude for January delivery fell US$1.60 to US$42.11 a barrel in afternoon trading. Crude fell below US$42 at one point.

Prices have rebounded from last week's intraday low of US$40.50 per barrel, the cheapest oil has been since December 2004.

In its short-term outlook released yesterday, the US Energy Information Administration said it expects global oil consumption to decline by 50,000 barrels a day this year and by 450,000 barrels a day in 2009, well below earlier forecasts on both counts.

Just last month, the EIA projected global consumption to increase by 100,000 barrels a day in 2008 and to remain flat in 2009. Total world consumption is between 85 million and 86 million barrels a day, according to the EIA.

Should the projections prove true, it would mark the first time in three decades that world crude consumption declined in consecutive years, the EIA said.

"If the world economy recovers sooner or is stronger than EIA now anticipates, oil consumption could decline at a slower rate or potentially increase instead, putting upward pressure on oil prices," the EIA said in Yesterday's report.

On the supply side, all eyes are on OPEC, although some question if even a big production cut, expected to be announced next week, will curb crude's stunning 70 percent free-fall over the past five months.

Analysts are debating how much power OPEC has to effect crude prices amid a spreading recession.

Oil prices may also be getting some support from word that President-elect Barack Obama plans to implement a major infrastructure program to help boost employment in the weakening US economy.