OIL slipped toward US$90 a barrel yesterday amid growing fears the US economy will slip into a recession and hurt demand from the world's top energy consumer.
The loss stretches oil's slide to about 10 percent since the record over US$100 a barrel hit January 3, taking pressure off of producer-group OPEC to boost output at its next meeting in February.
"The market may rally a bit but, with recession in the US becoming the major driver, it looks like the sentiment is to sell rallies rather than buy dips," said Nauman Barakat, senior vice president at Macquarie Futures USA in New York.
US light crude for February delivery fell 71 cents to US$90.13 a barrel, the lowest settlement since December 11. London Brent crude dropped 75 cents to US$88.75.
In fresh signs of economic weakness, factory activity in the US Mid-Atlantic region contracted sharply in January and home building in December fell to the slowest pace since the early 1990s, according to reports yesterday.
"The Philly Fed index (of factory activity) plunged into recession territory," said Ian Shepherdson, chief US economist at High Frequency Economics, in Valhalla, N.Y. "This is very alarming, because we had pinned our hopes on the relative strength of the corporate sector offsetting some of the housing hit."
Federal Reserve Chairman Ben Bernanke said yesterday that more interest rate cuts may be necessary to counter the worsening economic outlook, but he said the Fed has not forecast a recession.
US demand for crude oil and petroleum products fell 0.6 percent in December from a year earlier as a slowing economy and higher pump prices reduced gasoline consumption, the American Petroleum Institute said yesterday.
Adding downward pressure to oil prices, a government report released on Wednesday showed a bigger-than-expected increase in US crude stockpiles amid a rebound in imports and a slide in domestic demand from refineries.
It was the first weekly increase in stockpiles since early November, ending a run of declines that had pushed inventories to the lowest since October 2004.
OPEC reacted coolly this week to a call from US President George W. Bush for more oil output to bring down prices and ease strain on the economy.
OPEC President Chakib Khelil said there was no reason why the group should raise output at its next meeting on Feb. 1 if oil inventories recovered in the second quarter, a time of year global consumption tends to slow.
He predicted prices will trade between US$80 and US$90 in the first quarter, but forecasts for the rest of the year were difficult due to the possible impact of the credit crunch arising from the crisis over US subprime mortgages.
The market had risen more than a dollar earlier in the session on concerns of escalating Middle East tensions after Israel carried out a missile test. Israel Radio said the missile tested was capable of carrying an "unconventional payload."
Israel believes Iran is trying to build a nuclear weapon, a charge Iran denies.