Oil futures tumble 10% to end below $37 a barrel

[Bangkoktraveler]

Crude tumbled below $37 a barrel Thursday to their lowest level in at least four years, underscoring the market's preoccupation with a sharp slowdown in oil demand.

Year to date, oil prices have fallen 59% and are 75% since their record level above $147 a barrel in July.

Oil for January delivery fell $3.84, or 9.6%, to end at $36.22 a barrel on the New York Mercantile Exchange. Not since the middle of 2004 has the price reached this level.

Earlier, the contract hit an intraday low of $35.98 a barrel on Globex. The January contract will expire at the end of trading on Friday.

The February crude contract, which showed greater trading volume, fell $2.94 to end at $41.67 a barrel on Nymex.

"Below $38, we don't see anything until the $25 level," said Edward Meir, an analyst at MF Global. "This is admittedly a rather dramatic set of chart-based forecasts for a complex that only six months ago looked like it could do no wrong on the upside."

Traders have paid little heed to a production cut of 2.2 million barrels in current oil output by the Organization of the Petroleum Exporting Countries.

OPEC agreed Wednesday to cut 4.2 million barrels a day from its actual September production level of 29.045 million barrels a day.

The reduction in member nations' quota levels is effective on Jan. 1. Excluding previously announced cuts, OPEC will actually cut its daily production by 2.2 million barrels from current levels.

"There are doubts among market participants of OPEC's ability to comply with these cuts given the magnitude of the cut and their previous history," said Nimit Khamar, an analyst at Sucden Financial.

"Yes, it is a large cut by OPEC, which is positive, but going forward oil prices will only be supported by evidence of compliance and provided weakening demand does not deteriorate too much," Khamar said.

OPEC, which controls about 40% of the world's oil production, will hold its next scheduled meeting on March 15 in Vienna.

"If prices slide toward $30, no doubt OPEC will be meeting before then and perhaps announcing further cuts, which will be required in our opinion," Khamar said.

J.P. Morgan cuts oil price forecast

Strategists at J.P. Morgan slashed their forecast for oil prices in 2009 to $43 a barrel from $69 a barrel, citing "the ongoing deterioration in the world economic environment and the ensuing sharp contraction in global oil demand in both 2008 and 2009."

Commercial oil stocks have already risen to close to 60 days of forward consumption and are set to rise further before OPEC gets the market under control, which is estimated to take until the second quarter, the strategists said in a research report dated Dec. 17.

"While in the near term, recent extremely high volatility means a range of $15 a barrel around the mid-price forecast is appropriate, once a supply/demand balance is achieved, the stock overhang will mean that volatility is likely to fall sharply," J.P. Morgan said.

Also on Globex Thursday, January reformulated gasoline fell 5 cents to end at 92 cents a gallon and January heating oil dropped 7 cents to $1.37 a gallon.

Natural gas inventories fell by 124 billion cubic feet to stand at 3,167 billion cubic feet during the week ended Dec. 12, the U.S. Energy Information Administration reported Thursday. Analysts polled by Platts expected a reduction of between 107 billion cubic feet and 112 billion cubic feet.

January natural gas futures fell 7 cents to finish at $5.55 per million British thermal units.

 

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[cavanami]

Now let's see what the airlines do in the way of price cuts and that bull sh&t fuel surcharge!

 

Should we hold out breath for cheaper airfares

[ThaiHome]

Here's an interesting graph to put some historical perspective on this.

TH

[teddy]

The oil price has risen by more than 15% this morning

[liquidflux]

Airlines hedge their fuel purchases. It's not like a car where you pull up to the pump and pay the going rate. It'll probably be 6 months before their prices fall in line.