Oil price falls on fears for growth

OIL prices slipped below US$59 a barrel yesterday as investors grappled with the prospect that global growth next year will slow more than originally feared, cutting demand for gasoline and other crude products.

Expectations that a snapshot of the United States inventories will also show reduced consumption of oil and derivatives also acted as a drag on the market.

Light, sweet crude for December delivery was down 58 cents to US$58.75 a barrel in electronic trading on the New York Mercantile Exchange by the afternoon in Europe. The contract overnight fell US$3.08 to settle at US$59.33, the lowest closing price since March 2007.

Oil prices have fallen about 60 percent in four months, plunging from a record US$147.27 in mid-July.

"We have a pretty good idea that global growth is going to be pretty awful next year and probably not much better in 2010," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "There was clearly a bubble scenario in all commodities and that bubble has burst," he said.

Investors are pricing in slowing crude demand growth from China, whose economy was once thought to be a counterweight to weakening demand from the US and Europe.

Chinese growth

US bank Morgan Stanley earlier this week cut its 2009 forecast for Chinese economic growth to 7.5 percent from 8.2 percent.

The bank expects Asia outside of Japan to grow 5.5 percent next year, the US economy to shrink 1.3 percent and Europe to contract 0.6 percent.

"China is now seen as less of a backstop to falling demand in developed countries," Pervan said. "With definitive slowing in China, the market is even more sensitive to negative economic news out of the US and Europe."

The World Bank said on Tuesday that it expected developing countries to grow 4.5 percent next year, down from its previous forecast of 6.4-percent growth.

Developed countries will likely contract 0.1 percent in 2009, the bank said.

Trader and analyst Stephen Schork noted that the reaction to Beijing's planned economic stimulus package earlier this week - and the subsequent oil price fluctuations - were symptomatic of the jittery state the market finds itself in.

"Those traders who thought it was a good idea to pay US$65 on Sunday night were probably the same traders who had to sell at US$59 the following afternoon," he said.

Investors will be watching for signs of slowing US demand in the weekly oil inventories report to be released by the US Energy Department.