Crude oil fell after OPEC said that demand for its crude will decline 4.2 percent this year as the recession in the U.S., Europe and Japan curbs fuel use. Consumption of OPEC’s oil will shrink 1.4 million barrels a day to 29.5 million barrels a day, according to a monthly report released today. U.S. fuel demand fell 6 percent last year, the biggest drop since 1980, as prices touched records and the economy contracted, the industry-funded American Petroleum Institute said today. “The overriding factor impacting the market is the fact that we are in the midst of a global recession, which is buffeting the U.S., even China,” said Rachel Ziemba an analyst at RGE Monitor, an economic research company in New York. “That’s going to be a negative for oil demand.” Crude oil for February delivery fell $2, or 5.4 percent, to $35.28 a barrel at 10:30 a.m. on the New York Mercantile Exchange. Futures touched $35.05, the lowest since Dec. 19. Prices are down 62 percent from a year ago. Brent crude oil for February settlement declined 17 cents, or 0.4 percent, to $44.91 a barrel on London’s ICE Futures Europe exchange. The contract, which expires today, is more than $9 higher than oil traded in New York because of high U.S. supplies. The more-active March Brent contract slipped 86 cents, or 1.8 percent, to $46.76 a barrel. The Organization of Petroleum Exporting Countries also shaved its global demand estimate for 2009 by 20,000 barrels a day to 85.66 million barrels a day. That brings this year’s consumption reduction to 180,000 barrels a day, or 0.2 percent. ‘Major Contraction’ There will be a “major contraction” in demand among members of the Organization for Economic Cooperation and Development, with the United States being the “main contributor,” to this reduction, the OPEC report said. “Oil will have to drop into the high $20s before it finds its feet,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “We are looking at a huge drop in demand.” U.S. crude stockpiles increased 1.14 million barrels to 326.6 million barrels last week, the highest since Aug. 31, 2007, the Energy Department said yesterday. Gasoline and distillate fuel supplies also rose. U.S. fuel demand dropped 6 percent last week, the most in five years, the report showed. Inventories at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 2.5 percent to 33 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location. The price of oil for delivery next December is 61 percent more than for the front-month contract, allowing traders to profit if they can store crude. February 2009 crude is trading at a $7.33 discount to March, from $3.88 on Jan. 5. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango. Floating Storage Morgan Stanley is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from higher prices later in the year, four shipbrokers said. Frontline Ltd., the world’s biggest owner of supertankers, yesterday said about 80 million barrels of crude oil is being stored in tankers, the most in 20 years. OPEC agreed to a record 9 percent cut in supply targets at a Dec. 17 meeting to reverse the plunge in oil prices, which have dropped more than $100 a barrel in New York in the past six months. This week Saudi Arabia, the world’s biggest oil producer, said it will curb output by more than was announced at the December summit. “There’s a question about how effective OPEC will be in removing the slack supply in the near term,” Ziemba said. “There’s a lot of oil on tankers and inventories are building up around the world.” Economic Weakness Reports today signaled further U.S. economic weakness. Prices paid to U.S. producers fell 1.9 percent in December, capping the first annual decrease in seven years, as demand for raw materials collapsed, Labor Department figures showed. Initial jobless claims jumped by 54,000 to 524,000 in the week ended Jan. 10, the department said in a separate report. “It’s just more of the general malaise that has fallen over all the markets,” said Michael Fitzpatrick, vice president for energy at MF Global Ltd. in New York. “Nobody knows where the next negative headline is going to come from.”

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