Oil plummets below $83 on global slowdown fears
Light, sweet crude for November delivery was down US$3.84 to US$82.75 a barrel in electronic trading on the New York Mercantile Exchange in the European afternoon, the lowest since October 2007. The contract fell US$1.81 the previous day to settle at US$86.62 as stock markets continued to slump at record rates.
"The whole market has lost confidence in everything," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "Everyone is worried about global growth, and oil is the front line commodity for that. There's just a lot of panic and fear in the market."
Markets are unnerved by the fact that credit markets remain frozen despite massive bank bailouts in the U.S. and UK and an unprecedented coordinated rate cut by the world's major central banks. Investors are now worried that what has so far been a financial sector problem in developed countries will infect economic growth around the globe.
"There is blood on the street and the stampede continues with equities currently in a self-perpetuating corrective cycle," wrote analysts at Switzerland's Petromatrix research group.
The fear that a continued lack of credit will choke off global economic growth has pushed an energy watchdog to slash its forecasts for oil demand over the next two years.
The International Energy Agency cut its forecast for oil demand by 240,000 barrels per day this year and by 440,000 barrels per day in 2009. It also said the credit freeze is hurting the supply side of the oil industry, "with independent producers and, potentially, several Russian operators seen as particularly at risk."
But with economic growth in danger, oil investors are mostly focused on demand issues, even overlooking signs that the Organization of Petroleum Exporting Countries may cut production.
OPEC said Thursday it will hold an extraordinary meeting Nov. 18 to discuss how the widening global financial crisis is affecting oil prices.
On Thursday, the head of Libya's national oil company, Shukri Ghanem, called on oil producing nations to cut output.
"A production cut might help prices for a period of time, but at the end of the day, producers are really asking all the wrong questions," as the cycle of high oil prices is now over, wrote energy analysis group Cameron Hanover in a special report.
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