Crude oil falls to lowest level in 19 months

Crude oil sank below $60 a barrel yesterday, reaching its lowest level for 19 months and leading a broad retreat across commodity markets amid fears that the global economy was heading into recession.

Nymex December West Texas Intermediate dropped $3.23 to $59.18 after touching a low of $58.32 while ICE December Brent fell $3.38 to $55.70 after sinking to $54.92.

Oil prices fell in spite of a warning from members of Opec that the cartel might meet earlier than December 17 to cut a further 1m barrels a day of supply. It announced a 1.5m cut in October.

The International Energy Agency is due to release its monthly report tomorrow as speculation grows that the energy watchdog could substantially lower its forecasts for global demand growth.

The IEA’s new forecasts will be based on projections for global economic growth from the International Monetary Fund, which pointed to the first synchronised recession among leading nations since the second world war.

As a result, some traders think the IEA could say that global oil demand will contract this year for the first time since 1983 and that its 2009 forecast for consumption to increase by 700,000 barrels a day could be chopped in half.

US natural gas prices also fell sharply, down 4.5 cents, or 6.2 per cent, to $6.800 per million British thermal units, in spite of forecasts for cold weather across the eastern US and Canada.

The drop in oil prices dragged the Reuters-Jefferies CRB index, a benchmark for commodity markets, to its lowest level in almost five years.

The CRB index dropped 3.5 per cent to 252.31, its lowest point since December 2003.

Sliding oil prices and a stronger dollar weighed on gold which fell 2 per cent to $730.30 a troy ounce.

Among the other precious metals, silver lost 5.1 per cent to $9.66 a troy ounce while platinum sank 3.9 per cent to $814 a troy ounce.

One of Russia’s largest platinum discoveries has been announced by UralPlatinum, which has found a deposit containing up to 250 tonnes, the largest find since the end of the Soviet era.

Base metals retreated as officials in China admitted that plans for a $586bn government economic stimulus package were unlikely to provide an immediate boost to demand. Wen Xianjun, vice president of the China Nonferrous Metals Industry Association said: “The stimulus plan will show effect slowly. It will be very difficult for metals prices to rally next year.”

Producers are cutting base metals output in response to falling prices. Yesterday the focus turned to the nickel market, which has been affected by a downturn in global demand for steel.

Refined nickel output in China could drop by 10 per cent this year with Jinchuan Group, the country’s biggest nickel producer, expected to announce further cuts next month, having already slashed production by a third.

Nickel fell 4.5 per cent to $10,800 a tonne yesterday. Copper dropped 5.9 per cent at $3,645 a tonne, under pressure from a large increase of 4,625 tonnes in London Metal Exchange inventories.

Aluminium lost 1.8 per cent at $1,950 a tonne. Alcoa, the US producer announced further output cuts, slashing another 350,000 tonnes of capacity, due to weakening demand.

Alcoa has shut down 615,000 tonnes of production, or 15 per cent of its total capacity.