By Kendra Marr
Washington Post Staff Writer
Thursday, October 16, 2008
Oil prices slid below $75 a barrel yesterday, as OPEC reduced its petroleum demand forecast for next year in anticipation of a global economic slowdown.
Crude oil for November delivery fell $4.09, or 5.2 percent, to $74.54 a barrel on the New York Mercantile Exchange. This is the lowest settlement price since it was at $74.04 on Aug. 31, 2007, and marks a 49 percent collapse from the record of $147.27 a barrel it touched July 11.
Falling prices also pulled down the cost of a gallon of regular gas. The national average fell 4 cents from the day before to $3.125, according to AAA. That represents nearly a 25 percent fall from the all-time high of $4.114 on July 17.
The Organization of the Petroleum Exporting Countries, which controls about 40 percent of the world's petroleum, cut its 2009 forecast for oil demand by 450,000 barrels a day, or half a percent, to 87.21 million barrels a day. It also chopped its demand prediction this year by 330,000 barrels a day.
"Dramatically worsening conditions in financial markets indicate strong fallout on the real economy is now inevitable," said the 13-member group in its monthly oil market report released yesterday.
But while rich nations are cutting back, developing countries -- particularly China, India and those in the Middle East -- are increasing their consumption.
OPEC's report comes about a month before its Nov. 18 meeting in Vienna to discuss the economic situation's impact on the oil market.
Iranian Oil Minister Gholamhossein Nozari told the Bloomberg news agency yesterday that ministers are likely to agree to a reduction in supply during the meeting. On Oct. 9, OPEC's president, Chakib Khelil, also said a production decrease is "very likely," according to Bloomberg.
Evidence is growing that the global credit crunch could lead to a prolonged recession, forcing consumers and businesses to slash their energy use, experts said.
"There is certainly a real fear of even further demand shocks," said Stephen Schork, an energy analyst and trader.
Schork said crude prices could still have a ways to fall before the market bottoms out.
"Just because it's below $75 a barrel and we're hearing OPEC grumble does not mean it couldn't go to $50 or $60 before this weakness ends," he said.
In fact, one major oil exporting country is expecting oil prices to fall further. In drafting its budget for next year, Nigerian finance officials are openly discussing lowering its assumption for crude oil pricing from the current $59 a barrel, to $45 to $55 a barrel.
But J. Robinson West, chairman of PFC Energy, a consulting firm, said such pricing levels might not hold in the long run.
"There's a strong view in industry that if prices continue to soften, investment will slow, which will cause a snap up in prices later," he said.