Oil falls below $56 on grim world economic outlook

Oil falls below $56 on grim world economic outlook
By PABLO GORONDI, Associated Press Writer Pablo Gorondi, Associated Press Writer 2 hrs 24 mins ago
Oil prices continued to slide, to near $55 a barrel Thursday before rebounding slightly, as bad economic news from the world's largest economies heightened fears that a global downturn will slash demand for crude.
By the afternoon in Europe, light, sweet crude for December delivery was up 44 cents to $56.60 a barrel, after falling to as low as $54.67, in electronic trading on the New York Mercantile Exchange.
In London, December Brent crude rose 13 cents to $52.50 a barrel on the ICE Futures exchange.
The Nymex contract fell $3.50 Wednesdsay to settle at $56.16, the lowest closing price since January 2007, after the U.S. Energy Department slashed its 2009 oil consumption forecast.
"As the global economy continues to weaken, we're going to see further downward pressure on oil," said Stephen Roach, chairman of Morgan Stanley Asia, in Singapore. "I think we'll certainly challenge the $50 threshold. We could challenge the $40 threshold."
According the Paris-based Organization for Economic Cooperation and Development, the world's developed economies have slid into recession and will shrink further in 2009.
The OECD said Thursday that gross domestic product was likely to fall by 0.3 percent in 2009 for its 30 member countries, representing democracies with market economies.
It said the U.S. economy would contract by 0.9 percent, Japan's by 0.1 percent and the euro area by 0.5 percent.
The latest forecasts were a sharp downgrade since the last set in June, when the organization forecast OECD growth of 1.7 percent in 2009 and indicated that the worst of the financial crisis might have passed.
The International Energy Agency also cut its global oil demand forecasts for this year and 2009 on Thursday, as rich-world economies sink into recession and growth slows in developing countries.
The IEA now expects global oil demand to average 86.2 million barrels a day this year, nearly flat compared to 2007, and 86.5 million barrels a day next year. Its forecast cuts 330,000 barrels a day from the previous 2008 estimate and 670,000 barrels a day from next year's.
The German economy, Europe's biggest, also tipped into recession in the third quarter as weakening exports fueled a bigger-than-expected fall in national output.
Gross domestic product contracted by 0.5 percent in the July-September period compared with the previous quarter, the Federal Statistical Office said, following a 0.4 percent fall in GDP in the second quarter.
The U.S. Energy Department said Wednesday it expects U.S. consumption of petroleum to drop next year more severely than any time since 1980. The department's Energy Information Administration said 2009 petroleum consumption is projected to sink by 250,000 barrels per day, or 1.3 percent, more than twice that projected in its previous outlook.
Signs that U.S. consumer spending has plummeted also fueled pessimism. Department store retailer Macy's Inc. said sales fell more than 7 percent in the third quarter and consumer electronics retailer Best Buy Co. slashed its fiscal 2009 guidance on fears that consumer spending will erode.
The U.S. Labor Department said Thursday that jobless claims last week increased by 32,000 to a seasonally adjusted 516,000, the second-highest total since 1992. The increase puts jobless claims at levels similar to the recession of the early 1990s.
"It's not just gloom and doom sentiment, it's indeed real," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore. "Companies are showing poor earnings and announcing major job cuts."
Oil traders have looked to stock markets for guidance on investor expectations about economic growth.
The Organization of Petroleum Exporting Countries, which produces about 40 percent of world supplies, has signaled it may cut production before its next meeting in December on top of a 1.5 million barrel reduction in output quotas last month.
Thursday's pessimistic IEA oil demand forecast could speed up OPEC's decision for another quick production cut.
"This will make the case for OPEC to cut at least a further 1 million barrels a day as they need the world to return to just-in-time supplies," said Olivier Jakob of Petromatrix in Switzerland.
In other Nymex trading, heating oil futures rose 0.22 cent to $1.8376 a gallon, while gasoline prices gained 0.76 cent to $1.2557 a gallon. Natural gas for December delivery slid 4.2 cents to $6.363 per 1,000 cubic feet.
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Associated Press writers Alex Kennedy in Singapore, Geir Moulson in Berlin and Pan Pylas in London contributed to this report.