Crude prices fall again; storage space grows thin
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NEW YORK: The lack of space to store burgeoning crude inventories pushed oil prices lower Friday with yet another major energy group predicting demand in will fall again this year in a widening recession.
In its closely watched monthly survey, the Paris-based International Energy Agency cited "the relentless worsening of global economic conditions" as it reduced its global demand expectations by 1 million barrels, to 85.3 million barrels a day.
It would mark the first time in more than a quarter century that global demand fell in consecutive years.
Light, sweet crude for March delivery fell 59 cents to $42.95 a barrel on the New York Mercantile Exchange. The February contract, which expires Tuesday, fell 58 cents to $34.82 a barrel, down from a high of $50.47 a barrel last week as dismal economic and corporate results stoked investor fears that a drop-off in crude demand may be greater than expected.
Industries have pulled back production rapidly, which has led to huge builds in U.S. inventories of crude and natural gas.
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The Federal Reserve said Friday that industrial production plunged in December at twice the rate that analysts expected, with output falling 2 percent. The dismal showing underscored the heavy toll the housing, credit and financial crises are taking on the nation's manufacturers.
Traders unable to get rid off crude are selling at a huge discount as storage facilities fill up with unwanted oil and gas, said analyst Stephen Schork.
"With mills and plants being shuttered all over the country, that means there is a lot of gas that is not being consumed," analyst Stephen Schork said in a Friday report. "That tells us all we need to know about how bearish industrial demand for gas currently is."
The U.S. Department of Energy and OPEC this week also revised demand expectations downward for 2009.
Fall off in energy usage comes on the heels of unprecedented demand erosion in 2008.
U.S. petroleum deliveries — a measure of demand — fell 6 percent to 19.4 million barrels a day last year, with declines for all major products made from crude, according to the American Petroleum Institute.
Plunging demand has grounded oil prices for the past several months, with investors ignoring promises by the Organization of Petroleum Exporting Countries to slash 4.2 million barrels a day in crude production. The wild card is oil producers outside OPEC — whether they increase output and if so, how much that will compensate for reduced supplies from OPEC nations.
Noting that Moscow planned to lower the duty on oil exports, Vienna's JBC Energy said: "As this will increase the profitability of exports, Russia could ship higher volumes in February."
In other Nymex futures trading, gasoline slipped by 3 cents to $1.1444 and heating oil by 1.6 cents to $1.4708 a gallon, while natural gas for February delivery fell a penny to $4.832 per 1,000 cubic feet.
Bucking the Nymex trend, Brent crude for March delivery rose $2.45 to $47.14. The price difference is due in part to the strong stock build of Nymex crude compared to Brent, which traded on London's ICE exchange.
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Associated Press writers George Jahn in Vienna, Austria and Alex Kennedy in Singapore contributed to this report.
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