MARKET WATCH: Sinking economy pulls down oil prices

Crude futures fell nearly 6% to under $64/bbl Nov. 3 among more indications of economic problems around the world.

Sam Fletcher
Senior Writer

HOUSTON, Nov. 4 -- Crude futures fell nearly 6% to under $64/bbl Nov. 3 among more indications of economic problems around the world.

The Institute for Supply Management index, a closely followed survey of top executives, fell to 38.9% in October from 43.5% in September, the worst level of output in 26 years.

The European Commission said that the 27-nation European Union bloc probably entered a recession in this year's third quarter. The EC expects EU growth to slow from 1.4% this year to 0.2% in 2009 (eurozone from 1.2% to 0.1%, the worst since 1993), while inflation would average 2.2% in 2009 and 2.1% in 2010.

According to data compiled by Friedman, Billings, Ramsey & Co. in Arlington, Va., Japan's auto sales fell 13.1% from year-ago levels in October, the second lowest level since compilation of sales data began in 1968. Spanish car sales are down 40% from October 2007. US automakers reported total sales of 838,000 vehicles in October (lowest since January 1992), or an annualized 10.5 million vehicles (worst since February 1983).

Olivier Jakob at Petromatrix, Zug, Switzerland, said the gasoline futures market "fell into pieces and kept pressure on the oil complex while the rest of the commodity spectrum was actually well supported." He said, "The US refinery margins are getting under more extreme pressure."

Jakob said, "We do not see how US refineries will not move into lower refinery run mode. With negative gasoline cracks, US refiners rather than the Organization of Petroleum Exporting Countries are currently footing the bill of lower demand, and we question how long they will continue to do so. Compared to product prices, crude oil should be $5-10/bbl lower to provide some processing economics, but $5-10/bbl lower we would enter the danger zone of OPEC additional cut reaction. So until demand starts to show any sign of price-induced recovery the dynamics should be of lower refinery runs pushing OPEC to cut further until the overall system has a better margin by running on leaner just-in-time inventory."

Energy prices
The December contract for benchmark US light, sweet crudes dropped $3.90 to $63.91/bbl on the New York Mercantile Exchange. The January contract fell $3.89 to $64.54/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $3.90 to $63.91/bbl. Heating oil for December lost 10.14¢ to $1.98/gal on NYMEX. The December RBOB contract dropped 13.34¢ to $1.36/gal.

The December natural gas contract increased 5.5¢ to $6.84/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 28¢ to $6.45/MMbtu.

In London, the December IPE contract for North Sea Brent fell $4.84 to $60.48/bbl. The November contract for gas oil gained $8.50 to $645/tonne.

The average price for OPEC's basket of 13 benchmark crudes increased $1.60 to $59.03/bbl.

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