Oil again falls below $40 on fears of weaker crude demand
VIENNA -- Oil prices fell below $40 a barrel Tuesday, adding to a sharp drop overnight, on concerns that energy demand is evaporating in the face of a severe global economic slowdown.
Prices have fallen 73% since July on investor fears that massive job layoffs and plummeting consumer spending in the U.S. are weakening global oil consumption.
By noon in Europe, light, sweet crude for February delivery dipped 6 cents to $39.85 a barrel in electronic trading on the New York Mercantile Exchange.
"Fears of demand are dragging the price lower," said Toby Hassall, an analyst at investment firm Commodity Warrants Australia in Sydney. "You don't want to get in the way of a runaway train."
Overnight, the February contract fell $2.45 to settle at $39.91 a barrel after Toyota Motor Corp. and drugstore operator Walgreen Co. reported dismal news.
Walgreen's said profit fell 10% in its fiscal first quarter, while Toyota slashed its earnings forecast for a second time, warning that it now expects to post an operating loss for the fiscal year through March for the first time in 70 years.
The Dow Jones industrial average fell 0.7% Monday, the index's fourth straight day of losses. Oil investors have looked to stock markets as a barometer of sentiment in the economy.
"What we may have to see before oil prices really carve out a bottom is evidence that crude inventories have stopped rising or a sustained rally in equities," Hassall said. "The focus of the market has been almost purely on the demand side."
Hassall predicted prices could fall as low as $25 a barrel next year before rising to as high as $60 if the global economy recovers in the second half.
"Prices could dip into the 20s for a time, and then there will likely be fairly choppy, sideways action in the first quarter," Hassall said.
OPEC said last week it would slash production by 2.2 million barrels a day, its largest cutback ever, adding to a 1.5 million output quotas reduction in November in a bid to stem the rapid price decline.
