BLBG: Oil Falls for the First Time in Four Days as Recession Deepens
Crude oil fell for the first time in four days on signs the global recession is deepening, after the U.S. economy contracted faster than anticipated.
Oil dropped as government data showed the world’s biggest economy shrank at an annual pace of 6.2 percent in the fourth quarter, the most since 1982. Prices also declined as the dollar strengthened, reducing the appeal of commodities priced in the U.S. currency as a store of value.
“The GDP numbers are terrible and that’s putting pressure on the oil market,” said Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York. “Demand has cratered, and after these numbers we can expect it to sink further. The dollar is up, taking additional froth out of the market.”
Crude oil for April delivery fell $2.39, or 5.3 percent, to $42.83 a barrel at 9:05 a.m. on the New York Mercantile Exchange. Prices are up 2.8 percent this month and down 4 percent so far this year.
Futures rose $2.72, or 6.4 percent, to $45.22 a barrel yesterday, the highest settlement since Jan. 26.
U.S. GDP was projected to contract at a 5.4 percent annual pace last quarter, according to the median estimate of 74 economists surveyed by Bloomberg News. Forecasts ranged from declines of 3.8 percent to 6 percent.
Japan’s month-on-month decline in factory output exceeded the December record drop of 9.8 percent, the Trade Ministry said today in Tokyo. Household spending fell 5.9 percent from a year earlier, the biggest drop in more than two years.
The U.S. and Japan are responsible for about 30 percent of global oil consumption.
Brent crude oil for April settlement declined $1.68, or 3.6 percent, to $44.83 a barrel on London’s ICE Futures Europe exchange.
‘Undue Optimism’
“We rallied earlier this week because of undue optimism,” Fitzpatrick said. “I think we are seeing sanity return.”
Oil prices increased earlier this week after a U.S. government report showed a drop in gasoline stockpiles and OPEC members called for further cuts in output.
“We rallied for a few days, following gasoline,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “The market tested the $45 area again yesterday, but failed to advance further. Yesterday’s failure to break out decisively was followed by a lot of negative economic news today.”
Gasoline futures for March delivery fell 5.17 cents, or 4 percent, to $1.2487 a gallon in New York. Futures settled at $1.3004 yesterday, the highest since Nov. 13.
