Monday, October 06, 2008

Oil Falls to $89 a Barrel

Oil dropped $6 to below $88 a barrel on Monday on expectations the growing financial crisis will further slow already faltering global fuel demand.

U.S. crude traded down $6.00, to $87.80 a barrel, at 2:30 p.m. EDT after hitting a fresh eight-month low of $87.56. London Brent crude fell $6.45 to $83.80 a barrel.

Crude prices have plummeted from a peak over $147 a barrel set on July 11 as high fuel prices and the growing financial crisis slow oil demand in top consumer the United States and other industrialized nations.

"The prevailing macro sentiment is now crystallizing around the notion that we are heading into a synchronized global slowdown, a mirror image of the across-the-board expansion we saw from 2004 to early 2007," said Edward Meir of broker MF Global.

Analysts are now eyeing demand from China -- which helped fuel a 6-year rally in commodities -- for signs the crisis is hitting consumption.

The world's second biggest consumer will not import gasoline for the second straight month and instead export the fuel due to heavy domestic stockpiles and a dip in demand.

"I think the market's starting to build this into prices," said Mark Pervan, senior commodities analyst at ANZ. "You would expect the market is now joining the dots and thinking ... this will probably flow through to China."

The U.S. and European governments are trying to underpin the financial sector but this has so far failed to reassure investors.

U.S. stocks fell on Monday, with the Dow diving 689 points and falling below 10,000 for the first time in four years, as part of a global sell-off on investor fears the widening fallout from the credit crisis would drag the economy into recession.

European shares suffered their worst one-day percentage fall on record, sinking to four-year closing lows while trading in Brazil halted after a 15 percent drop in its benchmark index.

The drop in prices has caused some concern among OPEC members.

"Definitely there is worry. When the prices are so volatile, like rising to $140 and then dropping to below $90, it worries everybody," said Iraq's Oil Minister Hussain al-Shahristani.

Ecuadorean Oil Minister Galo Chiriboga said on Monday that OPEC will analyze the impact of the global financial crisis on oil demand and set production levels in accordance.

Iran said $100 a barrel was too low and urged members to respect their output targets to prevent oversupply from worsening.

OPEC President Chakib Khelil said OPEC would seek to balance the market when it meets in December.

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