A WORSENING economic climate pushed crude futures downward and depressed gasoline futures even further yesterday, one bit of good news for consumers amid a flurry of dour economic reports.
Gasoline futures tumbled nearly 9 percent with the release of the latest data suggesting to economists that the United States is in recession.
Manufacturers reported lethargic activity numbers for October, showing the worst reading in more than a quarter century, according to the Institute for Supply Management. The group reported that the manufacturing index fell to 38.9. Any reading below 50 signals contraction.
The last time the ISM released similar numbers, in September 1982, the nation was in a deep recession.
After trading above US$69 per barrel, light, sweet crude for December delivery tumbled US$3.87 to settle at US$63.91 on the New York Mercantile Exchange.
Declining gasoline futures have led to sharp drops in the price of gasoline in the US. The price for a regular gallon of gasoline dropped to US$2.41 (63 cents a liter) nationally yesterday, down more than 30 percent from last month, according to auto club AAA, the Oil Price Information Service and Wright Express.
A prominent Canadian economist even suggested oil prices have been overlooked as a trigger for the global economic slowdown.
CIBC World Markets economist Jeff Rubin said yesterday that four of the past five global recessions were preceded by an oil shock, and this time it is no different.
Rubin said if triple-digit oil prices started the recession, then US$60 oil prices may be what ends it.
Oil industry analysts had believed that the booming economies of India and China would pick up any slackening of demand if Western nations went into recession. That view has weakened in recent months, as the economic crisis in the United States spread across the globe.
In a report that seemed to parallel dire numbers in the ISM report, Credit Suisse yesterday forecast the sharpest drop in global oil demand since 1982.
And Credit Suisse analyst Mark Flannery said the latest economic data from China reveals a slowdown that is far worse than originally forecast. Credit Suisse, in a research note, reduced its estimates for 2009 Chinese oil demand growth from 4 percent to near zero. It predicts some recovery in 2010, back to 5.4 percent.
Flannery lowered his average price forecast for benchmark crude to US$60 a barrel next year from US$75, and to US$80 a barrel for 2010, down from a previous forecast of US$100 a barrel.
"A slower China means a slower global economy," Flannery said in the report, noting he's also made reductions to his oil-demand forecasts for other parts of Asia and the Middle East.
Declining expectations for demand come after the largest single monthly price drop for crude since futures were first traded on Nymex 25 years ago.
Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore, said he saw continued "downward volatility in oil futures."
"I expect oil to trade within the US$60-US$70 range in the near term," Shum said. The US employment data due later this week is likely to underline the economy's weakness and will cap gains in oil prices, he said.
That report is due Friday.
Analysts said other factors contributed to Monday's decline, including a stronger dollar versus the euro and a bit of a hangover from Friday's overexuberant late rally in oil prices.
Investors jumped into crude futures earlier this year as the dollar plummeted.
"We took back a bit of Friday's advance, with the strengthening of the dollar as the icing on the cake," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
Oil prices have fallen more than US$83 from their July peak around US$147. In October alone, crude prices tumbled 32 percent.
Declining prices comes despite a 1.5-million barrel production cut by the Organization of Petroleum Exporting Countries, a group of oil exporting countries that accounts for 40 percent of global crude production.
Venezuela's Oil Minister Rafael Ramirez has said OPEC will need to cut production by at least another 1 million barrels daily to stop the fall, but industry analysts believe demand has deteriorated so fast, OPEC has lost much of its power to control prices.
Shum said OPEC's recent output cut offset the decline in demand but a second cut may help tighten supply in the market and support oil prices in the long run.
In other Nymex trading, gasoline futures slipped more than 13 cents to US$1.36 a gallon. Heating oil fell 10 cents at US$1.98 a gallon and natural gas for December delivery rose 5 cents to fetch US$6.84 per 1,000 cubic feet.
In London, December Brent crude fell US$4.84 to US$60.48 a barrel on the ICE Futures exchange.