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The price of crude oil had sunk to $US73.52 today on escalating fears of a global recession, half of its peak of $US147.27 a barrel on July 11 and the lowest price since August last year.
Commodities across the board tumbled as Opec slashed its 2009 demand forecast, and oil traders looking at the stock market as a barometer of economic health are pricing a recession into the market, despite central bank and government moves to free up credit markets.
A Reuters-Jefferies CRB index of global commodity prices tumbled to 288.70, down nearly 40% from the all-time high in July and a new 22-month low.
September saw the biggest drop in monthly sales for US retailers in three years.
The Wall Street Journal said that in its monthly report out today, Opec’s forecast for global demand growth said demand for Opec crude will fall massively – by roughly 900,000 barrels per day next year, at the same time as around 1 million barrels per day of oil is expected to hit the market from non-Opec companies.
Opec won’t take this lying down of course, with plans to cut production at their November summit in Vienna, possibly by up to 1 million barrels per day on top of the 500,000 barrels it took off the market earlier this year.
Opec says even if the credit markets unblock and equity markets stop oscillating wildly, “the fallout on the real economy from the financial market headwinds is expected to be considerable.
“There is mounting evidence that the US economy might already be in the midst of a recession,” and “the same applies to the EU and Japan” while the crisis could hit emerging countries, which “until lately appeared to be partly shielded from significant economic contagion”.
According to MSNBC, demand growth from developing countries increased by 1.2 million barrels per day over the last 12 months at the same time as oil consumption in rich countries dropped by more than 1 million barrels.
Naumam Barakat, vice-president of global energy futures at Macquarie, said to the Financial Times: “The Saudis need to throttle back output significantly otherwise we are heading towards $50 a barrel.”
While Opec controls 40% of the global oil supply, analysts say even an Opec cutbuck won’t arrest the downward direction of crude.