LONDON – Oil prices fell below US$69 a barrel Wednesday as investors shrugged off a looming OPEC production cut after company forecasts suggested the U.S. may be headed for a severe economic slowdown that would crimp demand for crude.
Light, sweet crude for December delivery dropped US$3.37 to US$68.81 a barrel in electronic trading on the New York Mercantile Exchange by mid-afternoon in Europe.
The November contract expired Tuesday and fell US$3.36 to settle at US$70.89. Last Thursday, that contract had declined as low as US$68.57 a barrel, the lowest since June 2007.
Crude investors have followed equity markets this week, looking for signs on how the U.S. economy will weather the current global financial turmoil. On Tuesday, DuPont, Sun Microsystems and Texas Instruments reported disappointing earnings and bleak forecasts, sending the Dow Jones industrials average down 2.5 percent.
"Oil is now highly correlated with the stock market," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. "People are looking to the Dow for sentiment on the economy."
The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global oil supply, has signaled it plans to announce an output quota reduction at an emergency meeting Friday in Vienna.
But investors are skeptical about how much of the cut will be implemented, given the history of OPEC members exceeding their production quotas.
"There should be a short-term boost to prices when they announce a cut on Friday," Chu said. "But OPEC production has always been above their quotas, so there's a credibility problem."
Russia's top energy official said Wednesday that Russia, the largest oil producer outside of OPEC, may set aside an oil reserve to influence global prices — but won't cut output, according to news reports.
Deputy Prime Minister Igor Sechin said the government was considering creating an oil production reserve "which would allow it to work more efficiently with prices on the market."
Sechin would not name the amount of the reserves, but said they should be "enough to reach efficient pricing parameters," Russian news agencies reported.
He confirmed that Russia wouldn't cut oil output, unlike OPEC nations which are expected to slash production by 1 million barrels.
Crude oil is down 53 percent from its peak of US$147.27 reached in mid-July.
A stronger dollar this week has also pushed oil prices lower. Investors often buy commodities like crude oil as an inflation hedge when the dollar weakens and sell those investments when the dollar rises.
The euro fell below US$1.28 for the first time in nearly two years on Wednesday. The 15-nation euro dipped as low as US$1.2736 in morning trading before rising slightly to US$1.2873, down from US$1.3003 late Tuesday in New York.
Investors are also watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose 2.9 million barrels last week, according to the average of analysts' estimates in a survey by energy information provider Platts.
The Platts survey also showed that analysts projected gasoline inventories rose 3.0 million barrels and distillates went up 600,000 barrels last week.
In other Nymex trading, heating oil futures fell 6.22 cents to US$2.11 a gallon, while gasoline prices dropped 6.57 cents to US$1.63 a gallon. Natural gas for November delivery jumped 3.8 cents to US$6.88 per 1,000 cubic feet.
In London, December Brent crude was down US$2.64 to US$67.08 a barrel on the ICE Futures exchange.