MW: Crude tumbles below $80 to a fresh one-year low
IEA cuts global demand forecast; Deutsche Bank says oil's still 'richly priced'
SAN FRANCISCO (MarketWatch) -- Crude-oil futures tumbled again Friday, falling to a fresh one-year low below $80 a barrel and poised to end the week with a 10% loss as stock markets worldwide got routed and the energy complex came under renewed pressure amid fears about flagging demand.
"The question of the day is which can drop faster, oil prices or the economic outlook?" said James Williams, an economist at WTRG Economics.
"Despite the announcement that OPEC would hold an emergency meeting next month -- at which they will certainly announce a reduction in quotas -- oil continues to trade on the economic outlook," he said in emailed comments.
Crude for November delivery fell $5.44, or 6.3%, to $81.15 a barrel in electronic trading on Globex. Earlier, crude hit an intraday low of $78.61, its lowest since early October 2007.
Other energy futures also fell sharply, with reformulated gasoline plunging as much as 9%.
"Of all the forces that control activity in financial markets, one of the most powerful is currently at work: perception, the focus of which is demand," said Michael Fitzpatrick, an analyst at MF Global, in a research note.
"Fear coursing throughout the markets is producing a conclusion that the world is in, or very shortly will be in, a severe and long-lasting recession," he said.
Stock markets around the world tumbled on renewed concerns about the seized-up money markets at a time of faltering economic growth. See Market Snapshot.
On Thursday, the Organization of the Petroleum Exporting Countries announced it would hold an emergency meeting on November 18 in Vienna to discuss the global financial crisis, the world economic situation and the impacts on the oil market. OPEC said in a statement that it's "concerned about the deteriorating economic conditions with contagion risks."
OPEC's announcement, however, didn't do much to curb selling: Crude futures fell $2.36, or 2.7%, to close $86.59 a barrel on the New York Mercantile Exchange.
And on Friday, the International Energy Agency on Friday cut its estimates for global oil demand.
It revised lower its 2008 daily forecast by 240,000 barrels of oil to 86.5 million barrels. For 2009, the IEA lowered its demand estimate to 87.2 million barrels a day, down 440,000 barrels a day from its previous projection.
"Weak baseline summer demand in the main OECD consuming countries in the face of higher prices is now being perpetuated by weakening economic prospects and, most recently, by a spiraling liquidity crisis, which risks tipping OECD economies into outright recession," the IEA said in its monthly report.
But it also noted the current financial storm has an impact on the supply side, because credit shortages are another in a "long line of impediments to industry investment."
Revert to $60?
Indeed, "the deepening banking sector crisis and the significant slowdown in global growth that lies ahead will continue to put downward pressure on commodity prices most notably in the energy and industrial metals sectors" analysts at Deutsche Bank wrote in a research note.
So much for taking refuge in the commodities sector. Gold still has a shot as a "safe haven" investment. See Commodities Corner.
Of the commodities, crude oil is the "most richly priced," they said. Oil prices would need to fall to $35 per barrel in order to "bring prices in real terms back to their long run historical averages," they warned.
