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Oil slips to $37 as demand for crude wanes

VIENNA — Dismal global economic news dragged oil prices close to $37 Tuesday, with rising supplies and inventories offsetting expectations of further OPEC production cuts.

Light, sweet crude for March delivery fell 47 cents to $37.04 a barrel by midday in Europe on the New York Mercantile Exchange after settling at $37.51 on Friday. The contract rose 11 cents Monday in Asian and European trading, while U.S. markets were closed for the Presidents Day holiday.

Prices have fallen 75 percent since peaking at $147.27 in July as a credit crisis in the U.S. sub-prime mortgage sector has mushroomed into the worst global economic downturn in decades.

So far this year, U.S. companies have shed hundreds of thousands of jobs, dragging down consumer confidence. U.S. crude inventories have soared in recent weeks, reflecting a pull back in spending despite a drop in gasoline prices.

Falling consumer demand has caused increasing volatility in crude prices, leading to suggestions that the market has spun out of control.

“By now it should be clear to everyone that NYMEX crude oil is untradeable,” said energy analyst Stephen Schork, in his Schork Report. “It’s now a lottery.”

Poor economic data from Japan, the world’s second-biggest economy, further discouraged investors. It said Monday its economy shrank 3.3 percent in the fourth quarter from the previous quarter, the worst performance since 1974.

“The economic and inventory data paint a bleak picture for oil demand,” said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore. “Since the beginning of the year, the outlook has worsened.”

Supplies at the main U.S. depot for Nymex crude in Cushing, Oklahoma have jumped over the last two months, straining storage space to its brink. Some oil traders are selling crude they would otherwise store, which helps to push the price down.

“Given the storage situation in Cushing, it’s not surprising to see selling pressure,” Shum said. “When there’s limited storage, you just want to sell it.”

The front month March contract expires Friday.

OPEC’s output cuts have helped keep prices from falling further. Leaders of the Organization of Petroleum Exporting Countries have said they may add to 4.2 million barrels a day of cuts announced since September at a meeting next month.

“If prices are in the $30s going into the next OPEC meeting, we may see further cuts,” Shum said.

In other Nymex trading, gasoline futures rose 1 cent to $1.21 a gallon. Heating oil fell 4 cents to $1.26 a gallon, while natural gas for March delivery dropped 16 cents to $4.29 per 1,000 cubic feet.

In London, the March Brent contract rose 26 cents to $43.54 on the ICE Futures exchange.

Associated Press writer Alex Kennedy contributed to this report from Singapore.

Dorothy Cox of The Trucker staff can be reached for comment at [email protected].