Oil prices fall below $34

SINGAPORE – Oil prices fell below $34 a barrel in Asia yesterday as traders sold the expiring front-month Nymex contract due to a lack of space at a key US storage facility.

Light, sweet crude for February delivery was down 65 cents at $33.90 a barrel by late afternoon in Singapore in electronic trading on the New York Mercantile Exchange. The contract, which expires on Tuesday, fell $1.96 overnight to settle at $34.55.

The February contract has fallen about a third in two weeks, in part because burgeoning supplies in Cushing, Oklahoma, the delivery point for the Nymex contract, have left traders with little space to store crude, forcing them to sell.

Traders say some oil firms are storing crude on rented tankers.

“There’s too much oil in the world right now, and that oil is trying to find a home,” said Stephen Corry, head of investment strategy for Merrill Lynch in Hong Kong. “We’re finding surplus oil is being put in tankers ... and the price of future contracts is higher in order to offset the storage cost.”

Investors have turned their attention to the March Nymex contract, which is trading at $40.32 a barrel, and the March Brent, which is at $43.86 a barrel on the ICE Futures exchange in London.

“The true price of crude today is somewhere between $40-$45 a barrel,” said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

The oil market was closed in the US on Monday for Martin Luther King Jr. Day.

Weighing on all the contracts is a severe recession in developed countries and a slump in global oil demand. Hundreds of US companies report fourth quarter earnings this week, and investors fear the results could show the economic slowdown is deepening.

“The global economy remains the driver of oil so there’s a lot of downward pressure,” Shum said.

Goldman Sachs said Monday the price of oil could fall below $30 a barrel in the short-term before rising to $65 in the fourth quarter.

Investors will also be eyeing the inauguration of President-elect Barack Obama on Tuesday for any hints regarding the government’s economic and energy policies.

In other Nymex trading, gasoline futures fell to $1.12 a gallon. Heating oil dropped to $1.41 a gallon while natural gas for February delivery slid to $4.69 per 1,000 cubic feet. – AP