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Oil prices slump as demand crashes

CRUDE oil fell below US$40 yesterday in New York on concerns production cuts by the Organization of Petroleum Exporting Countries will fail to counter a slump in demand.

Oil consumption will fall by 1 million barrels a day this year while the United States, Europe and Japan face their first simultaneous recessions since the Second World War, Deutsche Bank AG predicted last week. US stockpiles have climbed in 13 of the past 15 weeks, according to the Energy Department. OPEC members signaled last week that they would be cutting their sales to refiners in February.

"The health of the global economy is the dominant consideration in the short term, and that is weighing down on prices," Harry Tchilinguirian, senior market analyst at BNP Paribas SA in London, told Bloomberg News. "OPEC cuts may prove to be supportive in future but it'll take time for them to take effect."

Crude oil for February delivery fell as much as US$2, or 4.9 percent, to US$38.83 a barrel in electronic trading on the New York Mercantile Exchange yesterday. It was at US$38.93 a barrel at 10:08am in London. Prices fell 12 percent last week as economic data showed the economic slump worsening. On January 9, prices in New York dropped 2.1 percent to US$40.83 a barrel after the US said it lost 2.59 million jobs last year, the most since 1945.

OPEC, supplier of more than 40 percent of the world's oil, agreed last month to cut production quotas by 9 percent to revive prices as the global recession erodes demand. Oil has plunged more than US$100 in the past six months.

Saudi Aramco, the world's biggest state oil company, sent notices to refiners in Asia on Friday that it would lower crude supplies to Asia by around 10 percent in February. This was the third month the company had cut sales.

"Although OPEC have made substantial production cuts there is an overhang of prompt oil and until that is absorbed the market may not rally substantially," said Christopher Bellew, senior broker at Bache Commodities Ltd in London.

OPEC may cut its production further should crude prices continue to decline, Iran's OPEC Governor Mohammad Ali Khatabi said on Sunday. OPEC is scheduled to meet next in Vienna on March 15. Iran is the group's second-largest producer, after Saudi Arabia.


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