LONDON (Reuters) – Oil fell toward $36 a barrel on Tuesday to its lowest level in three weeks as further signs the world economy was slowing sharply dampened demand expectations.
Worsening recessionary signals saw investors flee risky assets such as commodities for U.S. Treasury bonds on Monday, while European shares fell for a fifth session on Tuesday as expectations mounted for poor results in this reporting season.
U.S. light crude for February delivery fell $1.15 to $36.44 a barrel by 0909 GMT (4:09 a.m. EST). Prices have fallen by almost $15 in the past week, touching a low of $36.10 a barrel early Tuesday.
London Brent crude fell 72 cents to $42.19 a barrel.
“The big drag on energy continues to be the growing impact of the economic recession on global energy consumption,” said MF Global analyst Edward Meir in a note.
“If anything, far from stabilizing, things seems to be getting worse on the macro front by the day, as the numbers we are seeing coming from a variety of countries are all growing in terms of magnitude.”
Slumping fuel demand due to the global slowdown sent oil prices down 54 percent last year, and crude is now off more than $110 from its record peak above $147 a barrel last July.
Top central bankers said on Monday the global economy will slow markedly in 2009 as industrialized economies contracted, while the latest data from the Organization for Economic Cooperation and Development (OECD) showed that the world’s major and emerging economies were heading toward a “deep slowdown.”
“LOT OF PESSIMISM”
Analysts said the resumption of Russian gas supplies to Europe — whose disruption helped oil rally back to $50 a barrel at the start of the year — was pressuring prices further.
Russia started pumping gas to Europe through Ukraine on Tuesday for the first time since a contract dispute halted supplies to many European countries nearly a week ago.
“It’s generally a very negative tone out there and there is a lot of pessimism on oil demand in the near term,” Toby Hassall, chief analyst at Commodity Warrants Australia in Sydney.
A rally by the dollar against the euro also put downward pressure on oil and other dollar-priced commodities, analysts said. The U.S. dollar hit a one-month high against the euro amid expectations the European Central Bank will cut interest rates this week. Oil prices are falling despite news that OPEC members may cut output further and that heating oil demand in top consumer the U.S. will climb above average this week due to cold weather.
In yet another sign that energy consumption in the U.S. is falling, a preliminary Reuters poll ahead of Wednesday’s U.S. government inventory report, forecast crude stocks rose by 2.2 million barrels last week, third straight week of gains.
Crude oil stock levels at Cushing, Oklahoma, delivery point for the New York Mercantile Exchange crude contract, are at record levels, and may soon start to test capacity at the hub.