“Demand destruction is prevalent in developed countries with consumption falling at about 3 to 4 percent,” said Tobias Merath, a commodity analyst at Credit Suisse Group in Singapore. “The credit crunch is forcing traders to de-leverage their positions as they have no access to credit.''
Crude oil for November delivery fell as much as $1.09, or 1.2 percent, to $88.97 a barrel in after-hours electronic trading on the New York Mercantile Exchange, and traded at $89.73 at 10:54 a.m. in Singapore.
Futures have declined 39 percent from the record $147.27 reached July 11. Yesterday, crude oil rose $2.25 to $90.06 a barrel in New York.
The stock market decline has spurred concern that growth will slow and crimp demand for fuels. The Standard & Poors 500 Index slid 60.66 points, or 5.7 percent yesterday, to 996.23, extending its 2008 tumble to 32 percent in the market's worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008, the worst in 71 years.
U.S. motorists bought an average 8.625 million barrels of gasoline a day in the week ended Oct. 3, down from 9.536 million a year earlier, MasterCard, the second-biggest credit-card company, said yesterday in its SpendingPulse report. It was the 24th consecutive weekly decline, and the biggest since September 2005, after Hurricane Katrina sent pump prices to records.
The drop comes as tightening credit markets, bank failures and rising unemployment claims may indicate that the U.S. is entering a recession, curtailing fuel consumption.
West Texas Intermediate crude oil, the U.S. benchmark, will average $112 a barrel in 2008, the Energy Department said in its monthly Short-Term Energy Outlook. The forecast is down 3.3 percent from $115.81 a barrel estimated last month, the report from the department's Energy Information Administration showed.
U.S. oil demand will average 19.8 million barrels a day this year, down 830,000 barrels a day from 2007. This year's demand forecast was reduced 270,000 barrels from last month.
Demand among the 30-member Organization for Economic Cooperation and Development will fall 1.07 million barrels to 48.07 million barrels a day, the Energy Department said.
The OECD doesn't include developing countries such as Brazil, China and India. Consumption by non-OECD countries will rise 1.4 million barrels a day to 38.07 million barrels.
“Problems in the credit market are impeding the ability to build or hold inventory, placing excessive downward pressure on near-term prices," the Goldman analysts said.
The refining profit to make gasoline has fallen to near a record low while inventories of the fuel are at their lowest since 1967, the analysts said. Severe deterioration in U.S. credit conditions has forced “de-stocking” of inventories, they said.
Crude oil is more expensive than gasoline for delivery in the next four months, meaning refiners risk losing money on every gallon they make.
“Physical demand is declining and right now in the U.S. crude oil costs more than gasoline," Credit Suisse's Merath said. “The market is out of whack now.”
Yesterday, Libya and Qatar, which are members of OPEC, acted to stall the slide in oil prices. Libya's top oil official called for a production cut, and Qatar's oil minister said the country is reducing output in line with quotas.
OPEC President Chakib Khelil said this week that the group will take "appropriate measures'' to stabilize markets.
“OPEC is silently reducing production. Already they have cut by 500,000 barrels a day,” Credit Suisse's Merath said. "What they need is production discipline first before announcing any cuts.”
Author: Jo Amey
