VIENNA, Jan 12 – Oil prices fell today on concerns over global economic growth, with key US corporate earnings results expected to give a new reading on crude demand in the world’s largest consuming nation.
Economic worries outweighed factors that would normally boost the market - Mideast tensions, signs that OPEC was implementing large-scale production cuts and the Gazprom-Ukraine gas dispute.
Light, sweet crude for February delivery was down US$2.03 to US$38.80 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange. The contract on Friday fell 87 cents to settle at US$40.83.
Steel producer Alcoa, chip maker Intel and biotech company Genentech are expected to report fourth quarter results this week, providing investors with a gauge of how deep the current recession may be.
“Given that we’re likely to see quite a few rather poor fourth quarter earnings reports, downward pressure will continue to be exerted on oil,” said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. “Worries about the macroeconomic outlook will continue to constrain oil.”
Although still far away from their Dec. 19 closing of US$33.87, oil prices fell 17 per cent last week, weighed by fears that rising US unemployment will undermine crude demand.
The Labour Department said Friday that employers slashed 524,000 jobs in December and 2.6 million jobs for all of 2008. The nation’s unemployment rate jumped to 7.2 per cent, the highest since 1993.
“It seems that demand worries continue to dominate market psychology and not even the tensions in the Middle East, OPEC production cuts or the gas row between Russia and Ukraine were able to pull up prices.” said Vienna’s JBC Energy in a research note.
Still, those bearish factors were expected to keep further price erosion in check.
“We have these other factors that will support oil,” Shum said. “Most likely, we won’t see a big downward spiral despite the poor earnings reports.”
Prices of futures contracts for later this year suggest investors expect oil to recover. The March contract trades near US$46 a barrel while the April contract trades above $49.
“The expectation is that pricing will regain strength, and it’s not a question of if but when,” Shum said.
In other Nymex trading, gasoline and heating oil futures slid by more than 3 cents to US$1.08 and US$1.45 a gallon, while natural gas for February delivery remained steady at US$5.52 per 1,000 cubic feet.
In London, February Brent crude fell US$1.86 to US$42.56 a barrel on the ICE Futures exchange. – AP