Oil prices tumble on fears for reduced demand in America

Bill Condie11 April 2012

Oil prices plunged today as concerns over lower demand outweighed earlier optimism inspired by slower increase in stocks in the US.

Prices had rallied some 14% on New Year's Eve but today US crude fell $2.60 to $42 and Brent $2.35 to $43.24. Not even the conflict between Israel and Hamas could restrain the downward pressure.

Markets were instead focused on a US Energy Department report showing fuel consumption down 3.7% during the four weeks to 26 December from a year earlier.

Oil had a roller-coaster ride in 2008, falling 54%, the first annual decline since 2001 and the biggest drop since futures trading started in 1983. It had peaked at more than $147 in July. Speculation has now turned to the year ahead, with estimates of the direction of oil varying widely.

Seven of 14 analysts surveyed by Bloomberg said oil futures would rise next week, five said they would fall and two said there would be little change.

Upward pressure may come next week as the Organisation of Petroleum Exporting Countries instigates record production cuts in an effort to push up prices.

Oil producers are beginning to warn that current prices are uneconomical and must rise. Iraq's oil minister earlier this week warned that prices below $40 a barrel were unsustainable and likely to rise above $100 in the next few years.

"We believe that current lower prices will not stand for a long time for the simple reason that many producers, especially those from outside Opec, would not be able to keep producing," Hussain al-Shahristani said.

Traders said today's easing reflected sentiment "that the rally was overdone on Wednesday", said Dave Ernsberger of Platts, a global energy information provider.