The global economic crisis has since slammed demand and sent prices tumbling. -- PHOTO: ASSOCIATED PRESS
LONDON - US crude dropped to around US$38 (S$54) a barrel on Thursday, for the soon-to-expire January futures contract, after Opec's record output cut failed to stem the price decline and US inventories of oil swelled.
Oil is about US$109 off its July peak, shedding value as a global recession cuts into fuel demand.
NEW YORK - THE oil resource nationalism trend seen over the past six years may be scaled back or reversed as producer countries are forced to seek greater foreign investment to counter lower crude prices and shrinking budgets.
Big oil producing nations from Russia to Venezuela, emboldened by a seven-fold surge in crude prices from 2002 to over US$147 (S$211) a barrel in July 2008, have raised royalty terms for independent energy companies operating in their countries.
The January contract touched US$37.71 on Thursday, its lowest price since July 2004, and was trading down US$2.07 cents at US$37.99 a barrel by 1455 GMT (10.55pm Singapore time).
February futures, which come to the fore after January's expiry on Friday, were around US$5 higher than the current front month but also fell $1.46 to $43.15.
'There is an unusually large contango spread, nearly US$5, and the January contract expires in a few hours,' said Kevin Norrish, analyst at Barclay's Capital in London.
'So what's the real price?...the February price is a much better bet.'
The Organisation of Petroleum Exporting Countries on Wednesday made its third output cut since September to try to regain control of falling prices amid slackening demand.
US crude for January delivery tumbled nearly 8 per cent on Wednesday as traders dismissed Opec's 2.2 million barrel per day (bpd) output cut, decided in Algeria.
US stockpiles of crude oil rose last week slightly more that expected, with deliveries at the Cushing, Oklahoma delivery point for physical barrels of light sweet crude showing a build of 4.7 million barrels. This increase, announced on Wednesday, continued to influence trading on Thursday.
China on Thursday said it will cut domestic fuel prices on Friday for the first time in almost two years to revamp its regulated pricing regime and revive growth.
The China cuts of roughly 13 per cent for gasoline and 17 per cent for diesel were brought forward from an expected January implementation by the National Development and Reform Commission. Analysts say cheaper fuel in China could stimulate demand.
Some forecasters now predict the first decline in world energy use since 1983.
'Following Opec's announcement to cut so aggressively, market participants are reading the degree of this move as being indicative of just how weak demand is globally for crude oil,' said Chris Jarvis, a senior analyst at Caprock Risk Management.
'A retest of levels with February contract becoming the front month shortly is to be expected and also a catalyst for this...weakness,' Jarvis said.
For Opec's curbs to be effective the fractious group will need to enforce compliance, historically a tricky task in a falling market. The producer group itself estimates November production cut compliance by its members at around 50 per cent.
Next year's outlook is increasingly bleak as economic indicators show a deep global recession taking hold, causing oil demand to fall from the United States to China.
JPMorgan cut its 2009 average crude oil price forecast to US$43 a barrel from US$69 following Opec's cut, and analysts say more losses are in store until a sufficient supply is taken off the market or demand levels swing back up. -- THOMSON REUTERS
