Crude oil is trading under $78/barrel

Investors expect economic weakness will cut demand

By Tom Stundza -- Purchasing, 10/15/2008 12:26:00 PM

Crude oil prices fell below $78/barrel in global overnight trading Wednesday with investors concerned that the massive bank bailout by the U.S. and European nations won't keep the global economy from slipping into a severe slowdown that would erode energy demand. The Associated Press reports that crude oil prices have fallen by 47% since peaking near $150 a barrel in mid-July. (Oil settled at $74.54/ barrel today in New York, its lowest level in more than 13 months.)

Governments worldwide have pledged around $3 trillion as part of efforts to stem the financial crisis. However, the BBC says investors fear that government action to strengthen the financial system will not prevent a worldwide recession. The news service adds that while Europe and U.S. announced a series of steps to recapitalize banks and guarantee bank lending to get credit markets moving again, analysts and economists believe the risk of a global recession is as high as ever.

Meanwhile, Investors are watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Thursday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose 3.1 million barrels last week, according to the average of analysts' estimates in a survey by Platts Oilgram, an energy mews service.

The Platts survey also showed that analysts project gasoline inventories rose 3.1 million barrels and distillates went down 850,000 barrels last week. Crude stocks have grown as oil installations in the Gulf of Mexico that were shut down by Hurricane Ike last month begin operations again.