Oil prices continued to tumble Wednesday morning as recessionary pessimism crowded out hope among traders that Washington's latest financial rescue package would boost economic growth.
A barrel of crude for November delivery slipped 61 cents to $78.02 US in trading overseas in Europe.
It is not the level of the drop, however, but its direction that tells the tale.
Oil prices slid $2.56 in the overnight market Tuesday to reach $78.63 a barrel.
Changing expectations
That fall was a marked change from Tuesday morning when crude values rose in the wake of the U.S. government's new financial bailout plan, in which Washington will use $250 billion to buy shares in the country's largest banks.
Initially Tuesday, equity and oil markets viewed the move positively as traders appeared to believe the new proposal would prevent the global economy from sinking into a full-blown recession.
As the day progressed, however, the Dow Jones industrial index turned negative, the TSX lost more than 50 per cent of its early gains and crude prices, which had spiked above $80, headed south.
"People are worried that the world economy is heading for recession," said Gerard Rigby, an energy analyst at Fuel First Consulting in Sydney.
"The bailout may save the banks, but companies are still laying off workers and demand is going to suffer."
OPEC's frown
In addition, the Organization of Petroleum Exporting Countries cut its outlook for oil demand in 2009.
The powerful oil producers group said it now believes global demand will fall to 31.14 million barrels a day next year. That represents a reduction of 190,000 barrels a day from earlier projections and 870,000 barrels daily compared with demand in 2008.
OPEC has already said its members would need to cut production by one million barrels a day to meet its initial demand projections for 2009.
The group now plans to hold emergency meetings in November to formulate a strategy for dealing with a slumping world economy and tumbling oil prices.
$50 oil?
The suddenly gloomy oil market now has traders talking about the possibility of $50 a barrel oil prices.
Early in October, Merrill Lynch analysts Mark Hume and Alexis Clark said oil could rise as high as $150 or fall as low as $50 depending upon economic growth and OPEC's response.
Apparently, traders are starting to view sliding demand for crude and lower prices as the more likely scenario.
