VIENNA, Austria – Lingering worries over the health of the global economy pushed oil prices lower Monday, as traders ignored advancing stock markets and focused on fears of slipping demand.
Light, sweet crude for December delivery traded as high as $69.19 before falling back. By noon in Europe it was down 92 cents at $66.89 a barrel in electronic trading on the New York Mercantile Exchange. The contract settled at $67.81 on Friday, up $1.85 following a late-session surge on the back of a Wall Street rally.
Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore noted the initial rise was "in sync with Asian equity markets, which are firmer as investor confidence rises."
Oil investors have been tracking equity indexes as a barometer of global economic health. In trading Monday, Hong Kong's Hang Seng index was up 2.7 percent, while South Korea's Kospi was up 1.4 percent. Japan's markets were closed for a holiday.
Shum said U.S. presidential elections on Tuesday will help erase some uncertainties about future government policies, likely giving a further boost to equity markets and oil futures, especially if there's a convincing win by either Democrat Barack Obama or Republican candidate John McCain.
But persistent concerns that the weak global economy will weigh on oil demand well into 2009 are expected to keep a lid on prices.
"Oil markets remain gloomy, pressured by fears of strong demand destruction as a result of the global financial crisis," noted Vienna's JBC Energy, in its daily newsletter.
The U.S. Commerce Department last week said the economy shrank 0.3 percent in the July-September quarter, the worst showing for the world's largest economy in seven years.
Shum said he saw continued "downward volatility in oil futures."
"I expect oil to trade within the $60-$70 range in the near term," Shum said. The U.S. employment data due later this week is likely to underline the economy's weakness and will cap gains in oil prices, he said.
Oil prices have fallen about 54 percent since peaking above $147 a barrel in mid-July. In October alone, crude recorded its biggest ever drop as prices tumbled 32 percent.
The drop in oil come despite recent moves by the Organization of the Petroleum Exporting Countries to cut 1.5 million barrels of production a day.
Venezuela's Oil Minister Rafael Ramirez has said OPEC, which controls about 40 percent of world crude oil production, will need to cut production by at least another 1 million barrels daily to boost falling prices.
Opinion, however, is mixed on whether all members of the cartel will follow through on the cuts — or keep churning out as much crude as they can on fears that prices will plummet more.
Shum said OPEC's recent output cut hasn't managed to offset the decline in demand but a second cut may help tighten supply in the market and support oil prices in the long run.
In other Nymex trading, gasoline futures slipped more than 3 cents to $1.46 a gallon. Heating was down 1.5. cents at $2.07 a gallon and natural gas for December delivery dropped more than 3 pennies to fetch $6.75 per 1,000 cubic feet.
In London, December Brent crude was down 88 cents to $64.44 a barrel on the ICE Futures exchange.