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Oil falls to 3-year low at $40 on weak economy

(Agencies)
Updated: 2008-12-04 21:42

SINGAPORE – Oil prices sank to 3-year lows Thursday in Asia as more bleak news from the world's largest economy signaled that crude could tumble below US$40 by the end of the year.

Gas prices posted at a Chevron gas station in Manteca, Calif., Tuesday, December 2, 2008. [Agencies]

Light, sweet crude for January delivery was down 69 cents to US$46.10 a barrel in electronic trading on the New York Mercantile Exchange by late afternoon in Singapore after earlier trading at US$45.60 a barrel — the lowest since closing at US$45.42 on Feb. 10, 2005. The contract fell 17 cents overnight to settle at US$46.79.

"You could see prices testing US$40 by the end of the year because the economic data is really ugly at the moment," said Christoffer Moltke-Leth, head of sales trading at Saxo Capital Markets in Singapore. "Demand destruction is still very much the concern."

Oil prices have tumbled about 69 percent since peaking at US$147.27 in July.

Investors were dismayed at more poor economic news from the US. The Institute for Supply Management said Wednesday its services sector index fell to 37.3 in November from 44.4 in October. The reading was significantly lower than the 42 the market expected.

The Labor Department reported that productivity rose at an annual rate of 1.3 percent in the July-September quarter, down from a 3.6 percent growth rate in the second quarter.

Investors took little solace from a report showing US crude inventories fell last week. For the week ended Nov. 28, crude inventories fell by 400,000 barrels, the Energy Department's Energy Information Administration said Wednesday.

Related readings: Oil tumbles under $45 China to kick in fuel tax reforms in Jan Oil tumbles below $50 as recession called

Analysts had expected a boost of 2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

"People are really looking at economic figures right now and how bad a shape the world is in," Moltke-Leth said.

The Organization of Petroleum Exporting Countries has signaled it plans to lower output quotas at a Dec. 17 meeting, adding to a production cut of 1.5 million barrels a day in October.

Analysts are skeptical that an output reduction by OPEC can reverse the fall in the prices.

"I don't think it will have a major impact in the near term," Moltke-Leth said. "However, low prices will increasingly lead drilling and exploration projects to be postponed or canceled, so supply will become a concern in the medium term."

In other Nymex trading, gasoline futures fell 3.15 cents to US$1.01 a gallon. Heating oil dropped 2.45 cents to US$1.56 a gallon while natural gas for January delivery was steady at 6.35 per 1,000 cubic feet.

In London, January Brent crude fell US$1.39 to US$44.05 on the ICE Futures exchange.