Oil holds above $40 after more grim economic news (4:21 p.m.)
SINGAPORE — Oil prices held above $40 a barrel Tuesday in Asia after being dragged down overnight by more grim US economic news that pointed to a deepening recession in the world’s largest economy.
Light, sweet crude for March delivery rose 31 cents to $40.39 a barrel by late afternoon in Singapore in electronic trading on the New York Mercantile Exchange. The contract fell $1.60 overnight to settle at $40.08.
Oil prices have fallen about 72 percent since peaking at $147.27 a barrel in mid July as a financial crisis in the US sub-prime mortgage sector mushroomed into the worst worldwide economic slowdown in decades.
“I think the world is underestimating the power of this recession,” said Christoffer Moltke-Leth, head of sales trading for Saxo Capital in Singapore. “It’s still unfolding. It could be really, really ugly,” he said.
Moltke-Leth expects oil to fall to as low as $28 a barrel by the end of the March.
Personal consumption spending fell 1 percent in December, a sixth consecutive drop, the Commerce Department reported Monday. Total construction spending dropped by 1.4 percent in December, worse than the 1.2 percent decline economists expected.
Retailer Macy’s Inc. was the latest company to announce mass layoffs, saying Monday it would slash 7,000 jobs, or 4 percent of its work force, less than a month after announcing it would close 11 stores.
Caterpillar Inc., which makes construction equipment, announced on Friday that it will lay off another 2,110 employees, in addition to the 20,000 job cuts announced the previous week, and software maker IBM Corp. cut thousands of jobs last month.
Recent comments from OPEC leaders that the group may cut production soon have helped bolster prices. The Organization of Petroleum Exporting Countries has pledged to reduce output by 4.2 million barrels since September.
“There’s a lot of chatter from OPEC about having to cut further,” said Moltke-Leth. “I don’t see it happening because they need the cash, so it’s hard for OPEC to credibly talk the market higher.”
Crude inventories in the US have soared as drivers cut back on spending. A report Tuesday by the American Petroleum Institute, the industry’s trade association, is expected to show that oil stocks rose 2.9 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information
arm of McGraw-Hill Cos.
US Energy Department’s Energy Information Administration reports its inventory data on Wednesday.
Oil stocks have grown more than 20 million barrels in the last four weeks, evidence the US’s worst recession since more than 25 years may be deepening as consumer demand dries up.
In other Nymex trading, gasoline futures rose 1.58 cents to $1.17 a gallon. Heating oil gained 1.76 cents to $1.36 a gallon while natural gas for February delivery jumped 3.0 cents to $4.59 per 1,000 cubic feet.
In London, the March Brent contract rose 46 cents to $44.28 on the ICE Futures exchange. (AP)
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