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19.11.2008 Business & Finance

Oil Prices Continue To Decline

By AP -

Oil prices lingered near $55 a barrel yesterday in Asia as investors mulled more dire news pointing to a prolonged recession in developed countries and sustained weakness in demand for crude.

Light, sweet crude for December delivery was up 20 cents to $55.15 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.

The contract on Monday fell $2.09 to settle at $54.95, the lowest since January 2007. Prices have fallen about 62 per cent since reaching a record $147.27 in mid-July.

Stock markets, which oil investors use to gauge sentiment about the global economy, fell on mounting evidence that US consumers are cutting spending as big corporations shed tens of thousands of staff.

The Dow Jones industrial average fell 2.6 per cent on Monday, and Asian stocks opened lower yesterday. Japan's benchmark Nikkei index fell 2.1 per cent, Hong Kong's Hang Seng index dropped 2.9 per cent and the Korea Composite Stock Price Index slid 2.9 per cent.

“We're hearing bad news every day,” said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

“The market has priced in a recession in the developed countries and a slowdown in China so the uncertainty is how long and deep this recession will be.”

Citigroup Inc. said it's cutting another 53,000 jobs in the coming quarters after announcing last month it would lay off 22,000 workers. Analysts forecast Wall Street could lose up to 200,000 jobs by year-end.

Retailer Target Corp. said profit fell 24 per cent in the third quarter and Lowe's Cos. predicted a fourth-quarter profit below the average analyst forecast.

“The $55 level has gotten some support,” Shum said. “But downward pressure continues and we may approach $50.”

The Organisation of Petroleum Exporting Countries, which accounts for about 40 per cent of world crude supply, will have an informal meeting later this month, and some members are calling for another production cut on top of the 1.5 million barrels a day reduction that the group announced last month.

OPEC will more likely reduce output quotas at it next official meeting on December 17, Shum said.

“The cuts will not have much impact on pricing because the downward spiral has been due to recession fears and a substantial reduction in demand,” Shum said. “However, the cuts will set up a price resurgence down the line when the economy finally recovers.”

In other Nymex trading, gasoline futures rose 0.33 cent to $1.18 a gallon. Heating oil gained 0.14 cent to $1.79 a gallon while natural gas for December delivery increased 1.2 cents to $6.55 per 1,000 cubic feet.

In London, December Brent crude rose nine cents to $52.40 on the ICE Futures exchange.