Crude oil futures retreated Friday as an Organization of Petroleum Exporting Countries decision to trim output failed to counteract concerns about shrinking demand.
Light, sweet crude for December delivery settled down $3.69, or 5.4%, at $64.15 a barrel on the New York Mercantile Exchange, the lowest close for a front-month contract since May 31, 2007. Brent crude on the ICE Futures exchange settled $3.87 lower at $62.05 a barrel.
OPEC, in an emergency meeting, agreed to reduce output by 1.5 million barrels a day below its formal quota. The amount makes up 1.7% of world oil demand.
The cartel called its meeting as oil prices have declined more than $80 from their mid-July record highs. In a post-meeting communique it said the “dramatic collapse” put investment in new oil supply at risk.
The market extended declines after the announcement, reflecting concerns that about demand growth that’s been suffering as a result of the slowdown in the most industrialized economies.
“We’ve got demand slumping in the United States quite sharply,” said Bart Melek, global commodity strategist at BMO Capital Markets in Toronto. “The market is concerned that what is happening in the U.S. may be happening in other places in the world” — China, India and other emerging economies that have added to the global thirst for oil in recent years.
Oil’s weakness reflected declines in global stock markets, which were pummeled on signs world economies are stumbling. The Dow Jones Industrial Average was down more than 280 points at the 2:30 p.m. EDT close of New York’s oil trading floor. Amid uncertainty about future oil demand, “the equity markets right now are the bellwether” for oil trading, said Harry Tchilinguirian, senior oil market analyst at BNP Paribas Commodity Derivatives in London.
The dollar strengthened against the euro, further weighing on dollar-denominated oil. The euro was recently $1.2616, from $1.2895 late Thursday and more than $1.60 in July.
OPEC’s decision could eventually create a floor for prices as the balance of supply and demand tightens. That will depend on the length and severity of an economic downturn, and on OPEC’s willingness to reduce output further. The cartel’s next meeting is scheduled Dec. 17.
For now, “a global recession does not look like a remote possibility anymore,” said Merrill Lynch head of commodity strategy Francisco Blanch, adding that he sees “signs of oil demand cracking in emerging markets.” Merrill Lynch cut its fourth-quarter oil price forecast to $78 a barrel from $107.
Front-month November reformulated gasoline blendstock, or RBOB, fell 9.99 cents, or 6.3%, to settle at $1.4779 a gallon. the lowest close since January 2007. November heating oil fell 8.32 cents, or 4.1%, to $1.9465 a gallon — the fuel’s first close below $2 a gallon since August 2007.
Gregory Meyer, Dow Jones Newswires
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