OIL HITS 4-YEAR LOW; 9% PLUNGE
Crude oil’s crazy ride this year continued to test new extremes on a shortened trading day Wednesday as the price fell more than 9% to $35.35 a barrel, its lowest close in more than four years.
So far, the price of oil has plunged nearly 76% after reaching a record high of $147.27 in July.
Commodities traders were responding to more bad economic news Wednesday, analysts said, as government reports showed that unemployment rose and consumer spending fell.
“There is nothing in the numbers that indicates we’re anywhere close to an economic recovery. All of the cylinders on this engine are sputtering,” said Tom Kloza, chief oil analyst for the Oil Price Information Service.
A Labor Department report showed that the number of first-time filers for unemployment benefits surged to a higher-than-expected total of 586,000, a level of claims not seen since 1982. Consumer spending, the driving force of the U.S. economy, fell in November for a record fifth straight month.
For the oil markets, it translated to less demand and too much supply.
Oil futures for February delivery fell $3.63 on Wednesday on the New York Mercantile Exchange. During the half day of trading, shortened because of the holidays, the price dropped as low as $35.13.
The Energy Department also released figures in its weekly petroleum report that showed oil supplies at 318.2 million barrels, or 24.6 million barrels more than a year ago. Gasoline also was more plentiful than last year, even though the average price this week of $1.653 a gallon was close to half the price a year ago.
The two cuts in oil production recently announced by the Organization of the Petroleum Exporting Countries are being overwhelmed “by the amount of demand that has been lost through the global economic slowdown,” said Phil Flynn, senior market analyst for Alaron Trading Corp.
Oil could fall to $25 a barrel in the coming days and perhaps as low as $10 to $11 a barrel if a new round of layoffs and plant closings is announced in January, Flynn said.
Other analysts believe that the oil futures market had over-corrected from the record high and could not possibly remain this low for long.
Fadel Gheit, senior energy analyst for Oppenheimer and Co., said the oil markets were in a situation in which futures contracts over the next 12 months already were trading at progressively higher prices.
“It’s not a question of whether it will rise but when, and by how much,” Gheit said.
The one bit of good news has been retail fuel prices. If pump prices drop 3 cents more nationally, Kloza said, it would amount to the biggest single economic stimulus package to date for consumers.
“We will be spending $1 billion a day less on gasoline than we were at the record peak less than six months ago,” he said.
Kloza’s numbers are based on the daily credit card receipts collected from 10,000 filling stations around the U.S. by the Oil Price Information Service and by Wright Express.
By that standard, the national average for a gallon of self-serve regular was $1.655, down from the peak of $4.114 set in July. California’s average stood at $1.815, down from the high of $4.610 set in June.
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