Crude oil fell in New York as some traders viewed a rally of 14 percent at the end of last year as excessive amid slumping demand.
Manufacturing in the U.S., the biggest energy user, probably contracted in December at the fastest pace in almost 30 years, economists said before a report today. Fuel consumption there fell an annual 3.7 percent last month, according to the Department of Energy. Oil jumped 14 percent on Dec. 31 as U.S. fuel stockpiles rose less than expected, and as the conflict between Israel and Hamas raised concern that Middle East supplies would be disrupted.
“There was an over-reach to the upside,” said Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland. “The extent of the move was more due to low liquidity, and it being the end of the year” than fundamentals.
Crude oil for February delivery fell as much as $3.55, or 8 percent, to $41.05 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $42.28 a barrel at 1:11 p.m. London time and is up 12 percent this week.
Oil fell 54 percent in 2008, the first annual decline since 2001 and the biggest drop since futures trading started in 1983. The February contract rose $5.57 to $44.60 a barrel on Dec. 31, the highest since Dec. 12.
Fundamentals
“That rally on the 31st didn’t have too much behind it so we’re seeing crude come back to a level more reflective of the fundamentals,” said Toby Hassall, an analyst at Commodity Warrants Australia in Sydney. “We still don’t have a clear picture of when a global recovery is going to take place.”
An 8 percent drop in crude imports last year by South Korea reaffirmed the spread of plunging demand in Asia, the center for oil demand growth. The continent’s fourth-biggest economy imported 865.3 million barrels in 2008, down from 872.5 million the previous year, according to a government report today.
The U.S. Institute for Supply Management will probably say today its factory index fell to 35.4, the lowest level since 1980, from 36.2 the prior month, according to the median estimate of 57 economists surveyed by Bloomberg News. A reading of less than 50 signals contraction.
U.S. stocks last year plunged the most since the Great Depression as financial shares collapsed, energy and metal producers tumbled and the economy entered a recession.
Output Cuts
The Standard & Poor’s GSCI Index of 24 commodity futures lost 47 percent last year, the most since its introduction in 1971. The Reuters/Jefferies CRB Index of 19 raw materials dropped 40 percent, the biggest plunge since 1957.
Crude oil may rise next week as the Organization of Petroleum Exporting Countries makes record production cuts to counter the deepest economic slump since World War II.
Seven of 14 analysts surveyed by Bloomberg News, or 50 percent, said futures will gain through Jan. 9. Five respondents, or 36 percent, forecast oil will fall and two said there will be little change in prices. Last week, 46 percent of analysts said prices would drop.
Oil jumped earlier this week on turmoil in the Middle East and a natural gas dispute in Europe.
Israel yesterday killed a Hamas leader in its assault on the Gaza Strip and Foreign Minister Tzipi Livni said her nation would keep pressure on the militant Islamic group. An army spokesman, speaking anonymously in accordance with regulations, said warplanes hit Hamas leader Nizar Rayyan’s house in the Jabaliya refugee camp.
Gas Dispute
In Europe, the repeat of an energy standoff between Russia and Ukraine threatened fuel shipments. Russia prepared to resume talks with Ukraine in their dispute over the price of natural gas after cutting supplies to its western neighbor for the second time in three years.
The European Union urged Russia and Ukraine to “rapidly” resolve their dispute and said it counted on assurances gas supplies would continue uninterrupted.
Ukrainian President Viktor Yushchenko said in a statement the two sides are near a compromise, urging state utility NAK Naftogaz Ukrainy and OAO Gazprom, Russia’s gas exporter, to meet again in one or two days. Gazprom also proposed talks.
Brent crude oil for February settlement fell as much as $3.99, or 8.8 percent, to $41.60 a barrel on London’s ICE Futures Europe exchange. It was at $42.05 a barrel at 12:53 p.m. London time. The contract on Dec. 31 rose $5.44, or 14 percent, to settle at $45.59 a barrel.
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