Oil Drops to Below $41 on Weak US Jobs Report
Latest US jobs report causes trading on the New York Mercantile Exchange to reach a new 4 year low. This week’s price drop is the worst since the Persian Gulf War in 1991.
Crude oil prices dropped below $41 a barrel on Friday, after November employment data showed the worst job losses in 34 years. The report showed that U.S. employer’s cut 533,000 workers off their payrolls in the past month.
U.S. light, sweet crude fell $2.86, or 6.55 percent, to settle at $40.81, the lowest since December 2004.
Signs of the recession deepening in the U.S., the world’s biggest energy consumer, have led The International Energy Agency to lower its forecast for global annual demand growth to 1.2 percent from 1.6 percent in its previous forecast.
Fuel demand in the U.S. was down 6.2 percent for the four weeks ending on Nov. 28 compared to last year, according to the Department of Energy. Crude prices have dropped 24 percent since Nov. 28th.
A production cut is expected at the next OPEC meeting, scheduled for Dec. 17th in Algeria. OPEC will “definitely” cut output, said Qatar’s oil minister Abdullah bin Hamad al-Attiyah. The question seems to lie in how much, not if, although the minister said he does not have an idea of how large a cut will be approved by the cartel’s members.
Merrill Lynch drastically cut its forecast for the average price of crude oil on Thursday. “With demand vanishing across all key oil consuming regions, benchmark crude oil prices continue to plummet,” the bank released in its research report. “In the short-run, market participants will focus on both OPEC and perhaps even non-OPEC producer responses to balance the market.”
“A temporary drop below $25 is possible if the global recession extends to China and significant non-OPEC production cuts are required,” it said.
“In our view, oil prices could find a trough at the end of Q1 2009 or early Q2 2009 with the seasonal slowdown in demand. Then, as economic activity starts to strengthen, we see oil prices posting a modest recovery in the second half of 2009.”