Oil prices collapsed this week to under US$50, their lowest levels in almost four years, as the market focused on the threat of a global recession and tumbling energy demand.
Base metals aluminum and copper also hit their worst levels for more than three years as traders fretted about weaker demand from struggling automakers in the US.
“The deterioration in the global economic outlook had led to a significant decline in commodity prices and, most notably, energy and industrial metal prices,” Deutsche Bank analyst Michael Lewis said. “It has also led to a significant increase in inventories, for example across the industrial metals complex.”
Oil prices have plunged two-thirds since striking record highs above US$147 in July when fears of supply disruptions had helped to send them into orbit.
The fall below US$50 reflects an assumption that demand will be affected not only in Western countries but in China and India, whose rapid growth was also a major force pushing prices to record highs earlier this year, Jason Feer of energy market analysts Argus Media said.
“The market is fully internalizing the realization that the coming recession is going to be pretty significant and is likely to affect demand in some of the emerging countries that have been propping up the market,” Feer said.
Analysts said sentiment has been hammered by an unrelenting series of bad economic data in the US, the world’s biggest energy consumer.
The eurozone is already in recession — defined as two successive quarters of negative economic growth.
Action should meanwhile be taken to halt the decline in oil prices, Libya’s OPEC representative told reporters on Friday.
Nevertheless, Shukri Ghanem — the head of Libya’s national oil firm and its envoy to the OPEC oil cartel — did not explicitly repeat his call for oil production to be cut when the organization meets in Cairo next Saturday.
Ghanem said the group should examine whether the fall in prices was the result of weaker consumption or of speculators liquidating their positions in the market.
“The oil market needs some kind of action,” he said. “Of course the falling price hits our earnings but we’re not worried because it can’t last. We expect a turnaround.”
Last month, OPEC, which produces 40 percent of world oil, decided at an emergency meeting to slash its official oil output quota by 1.5 million barrels a day from Nov. 1.
The London-based Centre for Global Energy Studies on Tuesday forecast a contraction in global demand for the first time in 25 years.
By Friday, light, sweet crude for January delivery rose US$0.51 to settle at US$49.93 a barrel on the New York Mercantile Exchange. Earlier, in electronic trading, the price dipped to US$48.25, the lowest level since May 18, 2005.
In London, January Brent crude rose US$1.17 to settle at US$49.19 on the ICE Futures exchange.
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