MARKET WATCH: Crude prices tumble below $50/bbl

Hit by an avalanche of negative economic indicators, the front-month crude contract fell 9.5% to a new 3½-year intraday low of $48.62/bbl Dec. 1 in the New York market.

Sam Fletcher
Senior Writer

HOUSTON, Dec. 2 -- Hit by an avalanche of negative economic indicators, the front-month crude contract fell 9.5% to a new 3½-year intraday low of $48.62/bbl Dec. 1 in the New York market.

"The [oil and equity] markets took a beating as a whole slew of bearish economic news was released," said analysts in the Houston office of Raymond James & Associates Inc. "However, natural gas increased slightly on forecasts of below-normal temperatures. The markets may bounce back today with US stock-index futures trading higher premarket. The energy commodities were trading flat premarket."

Various reports showed significant drops in manufacturing in the US, China, the euro zone, and the UK. China's manufacturing activity in November suffered the sharpest drop in the 4-year history of economic surveys of that area by CLSA Asia-Pacific Markets, an independent brokerage and investment group based in Hong Kong. CLSA is an acronym for Credit Lyonnais Securities Asia.

In the US, the Institute for Supply Management reported that economic activity in November fell to 36.2%—the lowest reading since May 1982—from 38.9% in October. ISM said it was the fourth consecutive month of no growth in US manufacturing, as the overall economy contracted for the second consecutive month.

Perhaps of even more psychological importance to oil markets, the National Bureau of Economic Research, a private committee of economists, announced that the US economy has been in recession since December 2007. Based on its analysis of the gross domestic product and other economic indicators, NBER said US employment and incomes peaked last December; industrial production peaked in January; and sales peaked in June.

Meanwhile, general media quoted OPEC Sec. Gen. Abdalla Salem El Badri as saying OPEC will cut production "a good amount" in December. He said crude prices of $70-90/bbl would be "reasonable."

Energy prices
The January contract for benchmark US light, sweet crudes fell $5.15 to $49.28/bbl Dec. 1 on the New York Mercantile Exchange. The February contract dropped $5.14 to $50.86/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., closed at $49.28/bbl Dec. 1 vs. $49.77/bbl Nov. 25, the last quote available. Heating oil for January lost 11.2¢ to $1.62/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) declined 9.84¢ to $1.11/gal.

Natural gas for the same month, however, gained 9.4¢ to $6.60/bbl on NYMEX. On the US spot market, gas at Henry Hub, La., closed at $6.52/MMbtu Dec. 1 vs. the last available price of $6.70/MMbtu on Nov. 5.

In London, the January IPE contract for North Sea Brent crude lost $5.52 to $47.97/bbl. The December gas oil contract fell $20.25 to $505.25/tonne.

The average price for OPEC's basket of 13 reference crudes dropped $1.65 to $45.57/bbl on Dec. 1.

Contact Sam Fletcher at samf@ogjonline.com.

More in General Interest