Demand jitters push crude below $50

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Demand jitters push crude below $50
By Esther Bintliff and Javier Blas
November 20 2008

Oil sank below $50 a barrel, reaching its lowest point since May 2005 amid fears over the outlook for demand in the face of a global recession.

The drop in oil prices led a broader retreat in raw materials, with the Reuters-Jefferies CRB commodity index, a global benchmark, falling to a five-year low.

January WTI traded $4.68 lower at $49.42 a barrel. ICE January Brent dropped $3.64 to $48.08.

“Oil prices are searching for an elusive bottom,” said Antoine Halff of Newedge brokerage in New York. “Demand destruction today rivals that caused by the oil shocks of the 1970s.”

The options market is pricing in a growing likelihood that oil prices could sink as low as $40-$45 a barrel before the end of the year, with the cost of insuring against such an event jumping more than 90 per cent overnight.

In a further sign of the problems being suffered across the oil industry by falling demand, StatoilHydro of Norway announced on Thursday that it would shut oil products trading operations in Singapore, the world’s third largest energy hub.

Oil trading volumes in Singapore have declined in the past three months as concerns over counterparty risk have pummelled the over-the-counter market. Trading volumes fell about 44 per cent in September.

Jan Karlsen, a senior vice-president at StatoilHydro, said product trading would now be concentrated around its European refining assets.

“The decision will not affect any of our trading activities in crude or gas liquids, the key trading areas for StatoilHydro,” Mr Karlsen said.

Gold was a rare bright spot as investors sought its safe haven status. It rose 2.1 per cent to $748 an ounce.

Base metals extended their retreat, with copper breaking the $3,500 level to touch a three-year low of $3,430 a tonne, before recovering to $3,467 a tonne, down 3.6 per cent on the day.

Rising copper inventories at London Metal Exchange warehouses put pressure on prices, with stocks climbing 1,575 tonnes to 281,625 tonnes, the highest level since February 2004.

Meanwhile, Codelco, the world’s largest copper producer, cut its surcharge on sales to China by 32 per cent, in a bid to lure buyers into long-term contracts even as demand and prices slide.

One analyst at Antaike, the Chinese state-run information provider, said that fewer long-term contracts were expected from China next year, as consumers would look to the spot market for supplies, given the high levels of price volatility.

The price of copper has fallen 60 per cent since its all-time high of $8,940 a tonne set in July.

Aluminium shed 4.7 per cent to $1,78 a tonne, under pressure from a surge in LME stocks, up 20,850 tonnes.

Lead dropped 3.5 per cent to $1,187 a tonne. One of China’s lead producers, Xinling Refining Company, said it was mothballing 60 per cent of its 100,000 tonne capacity.

Zinc was 0.4 per cent lower at $1,175 a tonne and nickel lost 4.3 per cent to $10,000 a tonne.

Agricultural commodities also fell on the day, with CBOT December corn down 3.7 per cent to $3.64¾ a bushel. Wheat and soyabean prices dropped.