Oil dips below $40 over world economic concerns

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Oil dips below $40 over world economic concerns

This article was posted on Dec 31, 2008 and is filed under Press Releases

Crude falls as bad economic news drowns out conflict in the Middle East and supply concerns

COLUMBUS, Ohio (AP) — Oil prices fell Tuesday as consumer confidence in the U.S. hit an all-time low in December and home prices dropped sharply, with few signs that the real estate market has hit bottom.

Crude prices had risen for the first time in a week Monday with the armed conflict between Israel and Palestinian militants entering a third day. Israel on Tuesday said it might suspend its Gaza offensive to give Hamas militants an opening to halt cross-border rocket fire.

Violence in the oil-rich Middle East, however, was drowned out by more bad economic news in the United States.

Light, sweet crude for February delivery fell 99 cents to $39.03 a barrel on the New York Mercantile Exchange in very light trading.

Retail gasoline prices continued a descent toward $1.60 per barrel nationally as consumption by American motorists falls away.

A private research group said consumer confidence dropped unexpectedly in December in the face of layoffs and deteriorating markets for housing, stocks and other investments.

The Conference Board’s Consumer Confidence Index fell to 38 in December, from a revised 44.7 in November. Economists surveyed by Thomson Reuters had expected the index to rise incrementally to 45.

Also on Tuesday, a new report showed the sharpest decline on record for home prices in October.

The closely monitored Standard & Poor’s/Case-Shiller 20-city housing index fell by a record 18 percent from October last year, the largest drop since its inception in 2000. The 10-city index tumbled 19.1 percent, its biggest decline in its 21-year history.

Prices in the 20-city index have plummeted more than 23.4 percent from their peak in July 2006. The 10-city index has fallen 25 percent since its peak in June 2006.

The deteriorating economy has made nearly all geopolitical unrest in regions that could lead to supply shortages secondary on crude markets.

More than 370 Palestinians have died since the Israeli air onslaught against Gaza’s Islamic Hamas began Saturday, shortly after a rocky, six-month truce expired.

“Eight months ago this would have sent this market on an upward tear,” said Jim Ritterbusch, president of Ritterbusch and Associates.

The fact that oil prices continue to fall shows how much things have changed in five months. Crude price peaked near $150 in July, a period when a minor attack on oil installations in Nigeria were cited for price spikes.

“It is the most draining and exchausting year on record,” Peter Beutel of Cameron Hanover of this year’s oil market. “We had the biggest bull market in history followed by the biggest bear market in history.”

There were other developments Tuesday that earlier in the year would have sent crude prices upward.

Libya’s oil chief said his country will cut production in January by almost 20,000 barrels per day above its OPEC quota.

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, has announced production cuts totaling more than 4 million barrels per day in the last few months.

National Oil Corp. head Shukri Ghanem says the latest cuts would bring Libya’s total output reduction to 270,000 barrels per day from September levels.

Announced production cuts have done little to stop the slide in prices, and gasoline prices in the U.S. have followed suit.

Prices at the pump edged lower overnight, falling 0.3 cents to $1.616 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices are down 20.9 cents from a month ago and $1.43 from a year ago.

Americans are clocking billions fewer miles on the road as millions of people lose their jobs or cancel vacations.

And consumption remains weak despite low prices. Gasoline consumption for the year through Friday is down 3.2 percent compared with last year, according to the weekly SpendingPulse report by MasterCard released Tuesday afternoon.

For the week ended Friday, consumption was down 2.9 percent compared with the prior week and 3.8 percent from the same week a year ago.

The week-to-week decline was driven by Christmas on Thursday along with bad winter in the Northeast and Northwest, according to MasterCard.

MasterCard’s report is based on aggregate sales activity in the MasterCard payments network, coupled with estimates for all other payment forms, including cash and check.

Gasoline futures rose about a penny to settle at 87.45 cents a gallon, while heating oil gained less than a cent to settle at $1.2853 a gallon. Natural gas for February delivery tumbled 22.5 cents to $5.86 per 1,000 cubic feet.

In London, February Brent crude fell 40 cents to settle at $40.15 a barrel on the ICE Futures exchange.

Associated Press writers Ellen Simon and J.W. Elphinstone in New York, George Jahn in Vienna, Austria, and Alex Kennedy in Singapore contributed to this report.

source: yahoo finance.

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