Crude prices tumble among bad economic news and growing stockpiles

Source: Agencies  |   2008-12-25  |     ONLINE EDITION

CRUDE prices tumbled yesterday following a raft of bad economic news and growing stockpiles of unused gasoline that suggested demand for energy has continued to erode.

Light, sweet crude for February delivery fell US$3.63 to settle at US$35.35 a barrel in a shortened day of trading. Prices fell as low as US$35.13 just before the market closed for the holiday.

It was the ninth straight day that crude has fallen.

Investors expecting more evidence of slowing US energy demand got a bit of a surprise as the Energy Department reported crude inventories dropped last week.

But Americans continue to cut back on driving amid the worst recession in a generation, leading to growing stockpiles of gasoline and eroding demand for motor fuel.

Gasoline futures plummeted below 80 cents a gallon.

"I don't see anything out of this report that's really going to change this downward move," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "Things are going to remain under downside pressure through the balance of this year and probably into the new year."

A steady stream of dismal US economic and corporate data during the past few months has hammered investor confidence and sent oil prices reeling 74 percent since July.

More bad news emerged yesterday with consumer spending falling for a fifth straight month in November, the longest weak stretch in a half century, while incomes declined under the weight of massive job layoffs.

Separately, new claims for unemployment benefits rose more than expected last week, as layoffs spread throughout the US economy, more evidence the labor market is weakening as the recession deepens. The Labor Department reported initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week ending Dec. 20, from an upwardly revised figure of 556,000 the previous week. That's much more than the 560,000 economists had expected.

Manufacturers are slashing energy use as well. Orders at US factories for big-ticket manufactured goods fell again in November, reflecting further setbacks in the battered auto industry and a big drop in demand for commercial aircraft.

For the week ended Dec. 19 crude inventories fell by 3.1 million barrels, or 1 percent, to 318.2 million barrels, which is 9.1 percent above year-ago levels, the Energy Department's Energy Information Administration said in its weekly report.

Analysts had expected a boost of 1.5 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Gasoline inventories rose by 3.3 million barrels, or 1.6 percent, to 207.3 million barrels, which is 2.4 percent below year-ago levels. Analysts expected stockpiles of the motor fuel to rise by 900,000 barrels.

Demand for gasoline over the four weeks ended Dec. 19 was 2.7 percent lower than a year earlier, averaging nearly 9 million barrels a day.

In a separate weekly report, the EIA said natural gas storage levels in the US tumbled last week but remain 3.4 percent above the five-year average for this time of year. The EIA said natural gas inventories held in underground storage in the lower 48 states slipped by 147 billion cubic feet to about 3.02 trillion cubic feet. Analysts had expected a drop of between 142 billion and 147 billion cubic feet.

Oil traders so far have brushed off attempts by OPEC to boost prices through production cuts. The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, said last week it would slash production by 2.2 million barrels a day, its largest single cutback ever. The most recent round of cuts would reduce OPEC production by more than 2 million barrels per day.

OPEC may meet in Kuwait City on Jan. 19 to discuss further production cuts. The group's next official meeting is March 15 in Vienna.