Oil Prices Fall On Fears Of Less Demand

Prices have rallied some 15% on New Year’s Eve but today US crude fell $2.50 to $41 and Brent $2.40 to $43.20. Even the conflict between Israel and Hamas could not restrain the downward pressure.

Markets are instead focused on a US Energy Department report showing fuel consumption down 3.7% during the four weeks to 26 December from a year earlier.

Oil had a roller-coaster ride in 2008, falling 54%, the first annual decline since 2001 and the biggest drop since futures trading started in 1983. It had peaked at more than $147 in July.

Speculation has now turned to the year ahead, with estimates of the direction of oil varying widely.

Seven of 14 analysts surveyed by Oil Price UK said oil futures would rise next week, five said they would fall and two said there would be little change.

Upward pressure may come next week as the Organisation of Petroleum Exporting Countries instigates record production cuts in an effort to push up prices.

Oil producers are beginning to warn that current prices are uneconomical and must rise. Iraq’s oil minister earlier this week warned that prices below $40 a barrel were unsustainable and likely to rise above $100 in the next few years.

‘We believe that current lower prices will not stand for a long time for the simple reason that many producers, especially those from outside Opec, would not be able to keep producing,’ Hussain al-Shahristani said.

Traders said today’s easing reflected sentiment ‘that the rally was overdone on Wednesday’, said Dave Ernsberger of Platts, a global energy information provider. Ernsberger believes prices will stay in their current ’stable range’ until at least US president-elect Barack Obama’s inauguration on 20 January.

Oil prices are currently hovering around $40 per barrel however with production having hit peak it’s unlikely how long oil will stay this low, some analysts suggest it will go back to $150 / barrel after the current worldwide recession.