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Oil hovers near $59 on global growth pessimism

(Agencies)
Updated: 2008-11-12 14:00

Oil prices hovered near 20-month lows at $59 a barrel Wednesday in Asia as investors come to grips with the prospect that global growth next year will slow more than originally feared, cutting demand for crude products such as gasoline.

Light, sweet crude for December delivery was down 31 cents to $59.02 a barrel, after falling as low as $58.55, in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract overnight fell $3.08 to settle at $59.33, the lowest closing price since March 2007.

A truck passes the Hy-Vee gas station, Tuesday, November 11, 2008, in Des Moines, Iowa. Retail gasoline prices dipped for a 17th week since July 4, falling below $2 a gallon in a number of states and approaching $1.50 at some service stations. [Agencies]

Oil prices have fallen about 60 percent in four months, plunging from a record $147.27 in mid-July.

"We have a pretty good idea that global growth is going to be pretty awful next year and probably not much better in 2010," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "There was clearly a bubble scenario in all commodities and that bubble has burst."

Investors are pricing in slowing crude demand growth from China, the world's fourth largest economy, was once thought to be a counterweight to weakening demand from the US and Europe.

US bank Morgan Stanley earlier this week cut its 2009 forecast for Chinese economic growth to 7.5 percent from 8.2 percent. The bank expects Asia outside of Japan to grow 5.5 percent next year, the US economy to shrink 1.3 percent and Europe to contract 0.6 percent.

The World Bank said Tuesday it expects developing countries to grow 4.5 percent next year, down from its previous forecast of 6.4 percent growth. Developed countries will likely contract 0.1 percent in 2009, the Bank said.

Investors have brushed off two recent production cuts by the Organization of Petroleum Exporting Countries, and prices have continued to fall amid talk of a third quota output reduction next month.

Qatar's prime minister, Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, said Tuesday that "fair" oil prices of between $70 to $90 per barrel would ensure that expensive oil exploration could continue and help to avert price spikes in the future.

"The market has become so demand focused that obvious support mechanisms, like OPEC cutting supply, don't have the same impact," said Pervan, who expects prices to fall to $45 a barrel during the first quarter of next year.

Investors will be watching for signs of slowing US demand in the weekly oil inventories report to be released Wednesday from the US Energy Department's Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose 1.1 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

The Platts survey also showed that analysts projected gasoline inventories rose 850,000 million barrels and distillates increased 1 million barrels last week.

In other Nymex trading, heating oil futures rose 0.1 cent to $1.93 a gallon, while gasoline prices gained 0.8 cents to $1.31 a gallon. Natural gas for December delivery rose 0.2 cents to $6.71 per 1,000 cubic feet.

In London, December Brent crude fell 11 cents to $55.60 a barrel on the ICE Futures exchange.