Oil prices fell $1 on Friday as news of the largest job cuts in 30 years in the United States signalled still weaker demand in the world's biggest oil consumer. Nearly 600,000 jobs were slashed in the United States last month, the most severe cut since December 1974. US light crude for March delivery settled down $1 at $40.17 a barrel.
London Brent, which usually trades below its US counterpart, settled down 25 cents at $46.21. US crude is trading well below Brent as inventories in Cushing, Oklahoma - the delivery point for the US crude futures contract - are at record levels. The economic slowdown has curbed demand for fuel around the world, causing prices to fall over $100 from a peak near $150 last July.
"Crude has tested below $40 on the jobs losses but the fact that crude has not gone down much deeper is due to the fact that the stock market has held higher. Essentially, crude has been range-trading on either side of $40 all week," said Tom Knight, trader at Truman Arnold in Texarkana, Texas. Wall Street rallied on Friday as the dire jobs data persuaded investors that Washington would act quickly to deliver an economic stimulus package.
Canada too suffered heavy job losses in January, the worst in over three decades, with 129,000 workers pushed into unemployment, according to data from Statistics Canada. Europe's largest economy, Germany, saw a massive 4.6 percent dive in industrial output in December, with steel orders down 47 percent in the fourth quarter, deepening concern over the state of Europe's economy.
Toyota, the world's top carmaker, said its losses were growing as world car sales drop, while Volvo swung to a fourth quarter loss. The head of Italy's largest oil company predicted that oil could stay as low as $40 for the rest of 2009.
"A price of $40 a barrel, it's roughly my forecast for this year," Eni Chief Executive Paolo Scaroni said. That level is too low for members of the Organisation of the Petroleum Exporting Countries to generate enough revenue or encourage investment in new supply. In a bid to boost prices, Opec agreed to cut a further 2.2 million barrels per day (bpd) from January.
The reduction comes on top of curbs of 2 million bpd in place since September. Opec sources have indicated the group could cut a further 1 million bpd from output when it next meets on March 15. "These are significant output cuts and if they can implement more, then we should see global stock cover start to come down. Until then, prices seem well supported above $40 a barrel by the cuts so far," said Julian Keites at Newedge.