Oil dropped nearly 6 percent to below $40 a barrel on Monday on signs the global economic malaise was slowing fuel demand further. Apparent oil consumption in China fell by 3.2 percent in November from a year ago, according to Reuters calculations, while crude imports into the world's No 2 energy consumer dropped to the lowest level this year.
US crude for February delivery settled down $2.45 at $39.91 a barrel. The January contract touched $32.40 on Friday before expiring, the lowest since February 2004, weighed down by rising stock levels at the Cushing, Oklahoma, delivery point for the New York Mercantile Exchange contract. London Brent crude settled $2.55 lower at $41.45 a barrel.
"Chinese crude oil imports in November fell to their lowest level this year," John Kilduff, senior vice president at MF Global, wrote in a report. "Additionally, the Chinese central bank has made its fifth interest rate cut this year in an attempt to keep growth from faltering." China on Monday cut interest rates for a fifth time since September, and Japan warned it was sliding deeper into a recession encroaching steadily on the global economy, closing factories and throttling trade.
Oil prices have fallen more than $100 since July as the global financial turmoil threatens to trigger the first contraction in world energy demand since 1983. US stocks slid on Monday as the economic slowdown continued to eat into corporate profits and outlooks, while retailers tumbled on worries of lackluster Christmas sales.
Surging demand from China and other emerging nations sent crude on a six-year rally to record highs over $147 a barrel stuck in July, before the economic crisis began to slow demand in top consumer the United States and big economies.
The Organisation of the Petroleum Exporting Countries (Opec) last week agreed to reduce output by another 2.2 million barrels per day, adding to agreements to cut 2 million bpd from global supplies made since September to help balance the market and prop up prices.
"Don't doubt the efforts of Opec or its members to return the oil market to stability," Saudi Oil Minister Ali al-Naimi told reporters over the weekend in Qatar. A senior Opec delegate said the group was ready to reduce supply further if needed after the latest round of cuts were agreed last week, but added that he believed it had done enough for now to balance the market.
"Opec should not have to do anymore, but members are willing to do more if they have to. You can never tell with this economy in downturn," the delegate told Reuters. Asian refiners have yet to receive notice from Opec's core Gulf members of any further reductions to oil supplies since the group announced fresh cuts last week.
A Reuters poll of analysts ahead of weekly US data due out on Wednesday forecast US crude inventories rose by 300,000 barrels in the week to December 19, with distillate and gasoline stocks also expected to have gained.
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