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MiddleEastOnline.com: Oil prices continue to fall on demand fears

Analysts fear that weakness in US economy could potentially drop energy demands.
 
SINGAPORE – World oil prices continued lower in Asia Tuesday on deepening worries about a potential drop in energy demand owing to weakness in the US economy, analysts said.

In afternoon trade, New York’s main contract, light sweet crude for February delivery, shed 2.51 dollars to 88.06 dollars per barrel.

The contract slid 1.76 dollars to 88.81 dollars per barrel in electronic deals Monday while floor trading on the New York Mercantile Exchange was closed for the Martin Luther King holiday.

London’s Brent North Sea crude for March delivery was 63 cents lower at 86.88 dollars per barrel.

“It is unlikely that we will see a rebound any time soon due to the difficult circumstances that the market is in,” said Steve Rowles, an analyst at CFC Seymour securities in Hong Kong.

Leading energy consultants CGES warned on Monday that global growth could be further endangered if the OPEC crude producers’ cartel decides to cut output next month.

Ministers from the Organisation of the Petroleum Exporting Countries (OPEC) meet in Vienna on February 1 for a keenly-awaited production meeting.

“The Organisation’s member-countries have become dependent on the soaring oil revenues of recent years and are likely to seek to defend them in the face of a weakening global economy by cutting production to maintain prices,” the Centre for Global Energy Studies research group said.

“Such a course of action would only hasten the economic slowdown.”

US Energy Secretary Samuel W. Bodman on Monday urged OPEC ministers to pump more crude to ease pressure on prices.

“There needs to be an increased supply in order to keep the markets of the world supplied with oil,” Bodman told reporters in the UAE capital, Abu Dhabi.

But Rowles said it is difficult to see how OPEC would be willing to increase production when there are fears of a recession in the United States economy, the world’s largest.

“OPEC are not expected to increase supplies on February 1,” Rowles said.

The cartel insists that geopolitical unrest and heavy oil buying by speculators are behind elevated prices — but CGES said the market was driven by low supplies and keen demand.

Rowles said that despite heavy falls in the oil market on Monday, commodities were still seen as a “safer bet” than other markets.

Asian stock markets plunged again Tuesday on the heels of Europe’s worst trading day in more than six years, as fears of a US recession triggered a meltdown on bourses around the globe.

Oil prices have eased since striking records in New York of 100.09 dollars per barrel in New York and 98.50 dollars in London in early January.
“There were a number of developments which would have driven oil prices higher (Monday) had the market not been under pressure from a potential global recession,” said Sucden analyst Nimit Khamar.

The analyst pointed to recent comments by OPEC that the market is well supplied, and unrest in major oil producer Nigeria as news that would normally send crude prices skywards.

A major oil pipeline belonging to Italian oil company Agip caught fire and a tanker truck exploded in separate incidents Monday in southern Nigeria, military and industry sources said.

Anglo-Dutch energy group Shell said it has complained in a letter to the Nigerian parliament that the activities of oil thieves and vandals are hampering its operations in the country.

The letter, written by Shell’s managing director in Nigeria, Basil Omiyi, and quoted by the Guardian newspaper, said Shell has lost millions of barrels of crude to thieves and vandals since 2003.

Rowles said supply threats in Nigeria, Africa’s largest crude producer, have been going on for so long that they no longer really affect market sentiment.

“The focus now is on the US recession,” Rowles said.

http://www.middle-east-online.com/english/?id=23973

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