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Oil falls to 3-year low on bleak US economic news

2008-12-02 09:28:13

By PABLO GORONDI, Associated Press Writer Pablo Gorondi, Associated Press

Writer 5 mins ago

Oil prices fell to a 3-year low below $48 a barrel Tuesday as more bleak U.S.

economic news and plunging stock markets darkened investor expectations for

energy demand.

By midday in Europe, light, sweet crude for January delivery was down 71 cents

to $48.57 a barrel in electronic trading on the New York Mercantile Exchange.

Earlier in the session, prices briefly fell to $47.36, the lowest since 2005.

In London, January Brent crude slid 54 cents to $47.43 on the ICE Futures

exchange.

The Nymex contract plummeted overnight $5.15 to settle at $49.28 after more

signs of a weakening U.S. economy sent the Dow Jones industrial average down

7.7 percent.

Most Asian markets also sank Tuesday, with Japan's benchmark Nikkei 225 index

falling 6.4 percent, the Korea Composite Stock Price Index sliding 3.4 percent

and Hong Kong's Hang Seng index dropping 4.8 percent.

In Europe, markets were mixed, with London's FTSE 100 index down 0.1 percent,

Germany's DAX index up 1.1 percent and the CAC-40 index in Paris lower by 0.2

percent at midday.

Oil investors have looked to equity markets as a barometer of economic growth

sentiment.

"The basic story remains the same; consumption worries continue to depress the

oil market," said David Moore, commodity strategist at Commonwealth Bank of

Australia in Sydney. "Recent data out of the U.S. and other countries backs up

the view that consumption is weakening."

The National Bureau of Economic Research said that the U.S. economy has been in

a recession since December 2007 and that the current downturn will last until

the middle of 2009, the most severe slump since the 1981-82 recession.

What began as a financial crisis in the sub-prime mortgage sector has spread

throughout the U.S. economy, including industrial production. The Institute for

Supply Management said its gauge of manufacturing activity fell more than

expected to 36.2 in November. A reading below 50 indicates the sector is

contracting.

The Commerce Department reported that construction spending dropped by 1.2

percent in October, bigger than the 0.9 percent decline many analysts expected.

Meanwhile, expectations of another production cut by the Organization of

Petroleum Exporting Countries has failed to spark a rally in prices.

OPEC Secretary-General Abdullah El-Badri said the group would likely reduce

output quotas by between 1 million and 1.5 million barrels at a meeting on Dec.

17 in Algeria, according to a report on Iranian state television Monday.

OPEC, which accounts for about 40 percent of global supply, cut output by 1.5

million barrels a day in October, bringing total cuts to around 2 million

barrels a day this year.

"We think by next year OPEC will be somewhat successful in tightening supply

and underpinning prices," Moore said. "You have to wonder where the oil price

would be now without the OPEC cuts."

Moore said he expects an average oil price of $74 a barrel for 2009.

In other Nymex trading, gasoline futures fell 1.12 cent to $1.10 a gallon.

Heating oil dropped 0.78 cent to $1.6073 a gallon while natural gas for January

delivery slid 7.6 cents to $6.528 per 1,000 cubic feet.