Crude oil prices slip back to $41
High inventories, weak demand undercut crude oil futures
By Tom Stundza -- Purchasing, 1/8/2009 3:44:00 PM
Crude oil futures prices dropped Thursday morning close to $41/barrel as traders believe the global economy is under strain and that demand for energy will decline further in the near-term.
Light, sweet crude for February delivery settled Wednesday on the New York Mercantile Exchange (Nymex) at $43 after the U.S. Department of Energy's Energy Information Administration said that inventories of commercial crude oil inventories rose. West Texas Intermediate (WTI) crude oil averaged $47 in December but has been slipping spot and futures markets this month. A week ago, Nymex crude for February delivery had been $46.
CNNMoney.com reports that oil production has started to slow as low prices make both production and exploration less profitable. Last week, the number of oil and natural gas rigs in the U.S. searching for or pumping energy supplies fell to 1,623, or 5.7%, the largest decline in 15 years, according to oilfield service company Baker Hughes. Meanwhile, the Department of Energy reported Wednesday that the nation’s crude oil inventories rose by 6.7 million barrels to 325.4 million barrels for the week ended Jan. 2.
“The stock build should be enough to chase the bulls back into the barn,” economist James Williams at energy research firm WTRG Economics tells MarketWatch. “The substantial builds in crude oil, gasoline and distillates ought to bring the bears back from a short hibernation.”
Analyst Sheraz Mian at Zacks Investment Research in Chicago writes to clients today that “inventories that are 15.1% ahead of the same time last year are weighing on oil prices,” noting that “crude supplies remain out of sync with a very depressed demand environment.” In fact, Energy Information Administration data shows that current stock levels provide for 22.5 days of supply, significantly above the year-earlier level of 18.4 days.
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