Crude futures plunge to four-year low

Special Report:Global Financial Crisis

by Chen Gang

NEW YORK, Dec. 5 (Chinese media) -- Crude futures plunged to

a four-year low on Friday after a report showed that the U.S. economy is heading

for a deep recession.

Light, sweet crude for January delivery fell 2.86 U.S. dollars to settle at 40.81 dollars a barrel on the New York Mercantile Exchange after touching 40.50 dollars, the lowest since Dec. 2004.

Traders work in the crude oil futures pit on the floor of the New York Merchantile Exchange, Oct. 27, 2008.Crude futures plunged to a four-year low on Friday after a report showed that the U.S. economy is heading for a deep recession.(Chinese media/Reuters Photo)
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Unexpected unemployment data

"With an oil market squarely focused on the demand

side, and therefore the economy, prices moved lower on the much worse than

expected U.S. payroll data released by the Labor Department than implied by

preliminary indicators on the job market," said Harry Tchilinguirian, senior oil

market analyst at BNP Paribas Commodity Derivatives.

U.S. nonfarm payrolls shrank by 533,000 workers in

November, which make this the largest decline since December 1974, as the

year-old recession hammered the economy.

"With the flow of economic data still expected to be

poor, we can easily test lower levels," Tchilinguirian added.

The U.S. economy has officially entered a recession

since December 2007, according to the National Bureau of Economic Research, a

nonprofit panel of economists that dates American business cycles said Monday.

On Friday, the Labor Department said the unemployment

rate hit 6.7 percent last month, the highest since 1993, which adds up to 10.3

million Americans out of work.

"The price of crude continues on its precipitous

decline from the high set in July 2008. The move down comes amid a slew of

negative government data which indicated that the U.S. economy continues to

falter," Wall Street Strategies' senior research analyst Conley Turner told

Chinese media.

"Oil prices have fallen over two thirds the July high

of 147.27dollars a barrel in large measure by investor sentiment that the

economic slowdown is causing destruction in demand for the commodity," he said.

Weak demand outlook

Due to the world economic slowdown, major energy

research institutes and investment agencies cut its global oil-demand outlook

for 2009.

The Paris-based International Energy Agency reduced

its forecast by 170,000 barrels a day from its November estimate to 86.37

million barrels a day.

Merrill Lynch slashed its 2009 forecast earlier this

week, saying that average oil price could reach 50 dollars a barrel for 2009.

"On October 1, we lowered our average 2009 crude oil

price forecast to 90 dollars a barrel based on an global GDP growth forecast of

3 percent. Since then, our economists have slashed their 2009 forecast to 1.3

percent, a scenario that is consistent with a global recession," said the

Merrill.

Earlier this week, U.S. Energy Department said U.S.

fuel demand during the four weeks ended Nov. 28 was down 6.2 percent from a year

earlier.

"The outlook of the world economy certainly does not

bode well for the potential near term increase oil demand," Turner pointed out.

"In fact, the path of least resistance for oil is

down at this point and the possibility for it to fall below 40 dollars per

barrel is very elevated," he concluded.