Oil prices slid on Friday after the collapse of a US automakers bailout plan heightened worries about slowing demand as the global financial crisis bites.
Light sweet crude for delivery in January dropped US$1.70 a barrel to close at US$46.28 on the New York Mercantile Exchange.
On London’s InterContinental Exchange, Brent North Sea crude for January slipped US$0.98 to settle at US$46.41 a barrel.
AFP
Oil prices had soared more than 10 percent Thursday on signs that OPEC and Russia would cooperate next week in cutting production to support sagging prices.
“The beginning of a commodity rally that had included oil, may come to a halt as a consequence of the crisis of confidence in the wake of the bailout failure,” MF Global analyst John Kilduff said.
A US$14 billion plan to rescue ailing US automakers collapsed in the US Senate late on Thursday, raising the prospect of imminent bankruptcy for General Motors and Chrysler with millions of jobs at stake. The news weighed heavily on global stock markets on Friday, in turn depressing commodity prices.
“Crude futures tracked equity markets lower” on Friday, said Nimit Khamar, an analyst at Sucden brokers.
“Risk aversion set in after the auto industry bailout hit a snag,” Khamar said.
OPEC is widely expected to announce an output cut at a meeting on Wednesday in a bid to bolster prices that have plunged from record highs above US$147 in July.
OPEC, which pumps 40 percent of world crude, has called on non-members to play a role in reducing output to stem the sharp slide in crude prices of the last five months.
Russia said on Thursday it was ready to join forces with OPEC to stem the plunge in prices and could even become part of the oil cartel if membership were in Moscow’s interests.
Russia ranks alongside Saudi Arabia, de facto leader of OPEC, as the world’s largest oil exporter.
“The auto bailout failure will raise the specter of a deep recession as the ripple effect off the automakers supply chain spreads out. The paucity of credit may contract further as a consequence of the vast amount of debt issued by the car companies’ finance arms,” Kilduff said.
“The Treasury will be required to issue even more debt to cover the cost of the social fallout from expanded welfare, unemployment benefits, and pension guarantees,” he said.
Kilduff said Goldman Sachs oil analysts were issuing alarms months ago “super-spikes” to US$200 a barrel.
Those analysts “have now adopted the conclusion that we came to earlier this week: that the market was in a process of ‘bottoming,’” he said.
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