Crude prices fell below 89 U.S. dollars a barrel Friday on concerns of weakening demand and expectations that the Organization Petroleum Exporting Countries (OPEC) would raise output next week.
Light, sweet crude for January delivery fell 2.30 dollars to 88.71 dollars a barrel on the New York Mercantile Exchange. In London, January Brent crude dropped 1.96 dollars to 88.26 dollars a barrel on the ICE Futures exchange.
Weakening demand
Crude prices declined on the concern by the market that economic growth in the United States will slow in coming months and hence reduce demand for the commodity, Wall Street Strategies' senior research analyst Conley Turner told Xinhua.
The White House lowered its projection for the U.S. economic growth next year and raise its forecast for unemployment Thursday due to the deteriorating housing market and credit crisis. Under the administration's new forecast, the gross domestic product (GDP), will grow by 2.7 percent next year. Its old projection was a 3.1-percent increase.
Golden Sachs, a leading global investment banking, on Tuesday increased the U.S. economy recession risk to 40-50 percent and predicted the U.S. unemployment would increase from 4.7 percent to 5.5 percent. Therefore, the firm saw more rate cut and GDP growth below trend for extended period.
Investors worry that slowing economic growth in the United States and Europe is likely to curtail the demand for crude oil.
"While today the news driving the market is the possibility of a recession in the United States, the fact remains that demand from China and India is increasing as their economies continue to expand. As such, the sentiment in the coming weeks could shift due to some other geopolitical event or concerns about current supply, " Turner added.
OPEC's output hike
"Comments by the Saudi Oil Minister al-Naimi that current supplies in the market are ample prompted additional selling," said Turner.
On Friday, Ali al-Naimi said world oil markets are well supplied and it remains to be seen whether OPEC needs to boost output when it meets next week.
"There is absolutely ample supply," said Naimi. "The price movement has nothing to do with the fundamentals of the market."
Ministers from the OPEC, which includes 13 countries together producing around 40 percent of the world's oil, are to meet on Dec. 5 in Abu Dhabi under pressure from consumer nations to boost supply to lower prices that last week hit a record high near 100 dollars a barrel.
Since Tuesday, crude futures have declined more than 10 percent below the all-time high of 99.29 dollars a barrel set last week.
"The 100 dollars per barrel scenario while it may not be achieved this year is likely to occur in the not too distant future. This supply demand issue is not going away and the days of cheap oil are for the history books," Turner pointed out.
(Xinhua News Agency December 1, 2007)
