Crude Oil Falls to Lowest Since May 2005

Nov. 21 (Bloomberg) — Crude oil fell to the lowest since May 2005, trading almost $100 a barrel below its July record as demand drops amid a global recession.

Oil is poised to drop 15 percent this week, the worst performance since Oct. 10 as the world economic crisis reduces demand growth to its weakest in 23 years. Equity markets plunged and copper has declined 63 percent from its May record to trade at its lowest since July 2005.

“It’s all driven by fear while the logic suggests a serious slowdown in demand caused by a worsening global economic outlook,” said Toby Hassall, analyst at Commodity Warrants Australia in Sydney. “The equity market is a barometer of the economy, and the market is pricing in a serious slowdown.”

Crude oil for January delivery fell as much as $1.17, or 2.4 percent, to $48.25 a barrel, and traded at $48.45 at 10:09 a.m. Singapore time on the New York Mercantile Exchange. Futures have dropped 67 percent since reaching a record $147.27 July 11.

Oil for December delivery dropped $4.68, or 8.7 percent, yesterday to expire at $49.42 a barrel.

Japan’s economy, the world’s second-largest, will probably shrink this year and next in the first back-to-back contractions since the banking crisis a decade ago, economists say.

Singapore lowered its growth forecast for a fourth time this year and said the economy of Asia’s biggest oil-trading center may contract in 2009, adding pressure on policy makers to implement more measures to avoid a prolonged slowdown.

OPEC Meeting

The Organization of Petroleum Exporting Countries, due to meet on Nov. 29 in Cairo and again on Dec. 17 in Algeria, may lower output by a further 1 million barrels a day this year, extending production cuts agreed to last month, according to a Bloomberg News survey of analysts last week.

The International Energy Agency, an adviser to 28 nations, said last week that world oil demand will rise at its slowest pace for 23 years in 2008. It cut its 2009 estimate by 670,000 barrels a day to 86.5 million barrels a day, the biggest reduction in 12 years.

New York oil futures first traded above $50 on Sept. 28, 2004, in the middle of oil’s six-year rally toward this year’s records. Prices climbed on the strength of oil demand from emerging economies, led by China, the world’s second-largest oil consumer after the U.S.

Brent crude oil for January settlement fell 68 cents, or 1.4 percent, to $47.40 a barrel at 10:02 a.m. Singapore time on London’s ICE Futures Europe exchange. Yesterday the contract fell $3.64, or 7 percent, to $48.08, the lowest settlement since May 20, 2005.

Equities Decline

Asian energy stocks fell as oil and metals prices dropped. Woodside Petroleum Ltd., Australia’s second-largest oil company, lost as much as 13 percent. Cnooc Ltd., China’s biggest offshore explorer, slipped 5.6 percent to HK$4.90, and PetroChina Co., Asia’s biggest company by market value, fell 5.9 percent to HK$5.09.

The drop in oil prices may cut investment. As many as 44 projects being undertaken by companies including Saudi Arabian Oil Co., Royal Dutch Shell Plc and Petroleo Brasileiro SA have been delayed or faced spending reduction, according to a Nov. 18 report by Morgan Stanley & Co.

Goldman Sachs Group Inc. cut its forecast for the average price of New York-traded crude oil in 2009 to $80 a barrel from $86, adding that it was closing all its trading recommendations for oil.

A price average of $50 a barrel for most of next year is possible if economic and industrial activity in Asia fails to stabilize, the weekly report dated Nov. 19. The bank has cut its 2009 outlook 46 percent since September.