Oil falls below $40

COLUMBUS, Ohio – Oil prices dipped below $40 per barrel Friday for the first time this year as the US government reported the nation’s worst annual job losses since World War II.

People are traveling less, manufacturers are slashing production and there are job cuts across almost every sector of the economy, leading to a severe drop in energy use.

The Labor Department said employers slashed 524,000 jobs in December and 2.6 million jobs for all of 2008. It was the worst annual loss since 2.8 million jobs were lost in 1945, although the number of jobs has more than tripled since then. The US unemployment rate jumped to 7.2 percent, the highest since 1993.

Light, sweet crude for February delivery fell 87 cents to settle at $40.83 on the New York Mercantile Exchange after dipping as low as $39.38.

Crude has closed lower for four straight days, with dire economic news overshadowing armed conflict in the oil-rich Middle East, a dispute that has shut off or disrupted natural gas supplies to more than a dozen European nations, and diminished crude exports from the Organization of Petroleum Exporting Countries (OPEC), which accounts for about 40 percent of global supply.

The unemployment report bolsters how the worst recession in decades has taken hold of the US economy.

At the same time, crude oil continues to flood the market, with traders storing oil at sea in hopes that it can be sold later should prices rise.

Oil analyst Stephen Schork notes in his daily report how weak the economy has become, especially in the auto and steel industries.

The Detroit Three automakers have announced extended holiday shutdowns. Chrysler has said it is closing all 30 of its North American manufacturing plants for four weeks because of slumping sales; Ford will shut 10 North American assembly plants for an extra week in January, and General Motors will temporarily close 20 factories – many for the entire month of January – to cut vehicle production.

Oil prices at one point Tuesday reached $50.47, the highest price since Dec. 1, before the continuing raft of lousy economic news took hold.

First, it is the National Association of Realtors reporting that pending home sales fell to the lowest level on record in November.

Then the government reported that orders to factories fell for a record fourth straight month in November.

On Wednesday, prices fell 12 percent after the Energy Information Administration said crude oil inventories rose 6.7 million barrels, well above the 1.5 million-barrel build expected by analysts, followed by Friday’s unemployment news.

Rising US inventories show just how badly demand for energy has eroded.

But Peter Beutel of Cameron Hanover said in his Friday report that despite the bearish news, he is looking for prices to stabilize, helped by the government’s stimulus packages, interest rate cuts in the other countries, low mortgage rates in the US, historically low refining rates in the US and the start of refinery maintenance, and OPEC production cuts.

Meanwhile, Deutsche Bank lowered its forecast for oil prices to $45 from $55 for the first quarter and reduced its annual average oil price for 2009 to $45 from $47.50.

Analyst Adam Sieminski said he expects a sharp recovery in prices perhaps in the second half of 2010.

“We expect global oil demand growth to be significantly worse in 2009 than consensus forecasts. In an environment of rising OPEC spare capacity and excess global refining capability, we believe oil prices will not hit rock bottom until the end of this year as OPEC production cuts work their way through the system and global growth starts to recover,” Deutsche Bank said in a note to investors.

Heating oil prices also continued to move lower even with the forecast of a major winter storm from the Midwest into New England that could dump up to 20 centimeters of snow by Saturday night.

In other Nymex trading, gasoline futures rose 2.3 cents to settle at $1.1112 a gallon. Heating oil fell 3.2 cents to settle at $1.4877 a gallon while natural gas for February delivery lost 6.7 cents to settle at $5.516 per 1,000 cubic feet.

In London, February Brent crude fell 25 cents to settle at $44.42 a barrel on the ICE Futures exchange. – AP