Oil falls 4 percent on forecast for shrinking demand
NEW YORK (Reuters) - Oil prices fell nearly 4 percent on Tuesday after the U.S. government forecast the world economic slowdown would shrink global oil consumption this year for the first time since the early 1980s.
U.S. crude fell $1.71, or 3.91 percent, to $42.00 a barrel at 2:30 p.m. EST, after hitting a session low of $41.95. London Brent fell $2.02 to $41.40 a barrel.
The U.S. Energy Information Administration said in its monthly energy outlook it expected global oil demand to fall by 50,000 barrels per day in 2008 and 450,000 bpd in 2009 -- marking the first time since 1983 that year-to-year world oil demand has dropped.
The lower forecast came as the EIA revised its 2009 world GDP growth estimate to 0.5 percent, down from last month's estimate of 1.8 percent. The EIA estimates 2008 GDP growth will end up at 2.7 percent.
"The EIA forecast is overly optimistic. I expect a significant contraction in demand, given the current state of the global economy," said Tom Knight, a trader at Truman Arnold.
Adding to the economic gloom, Japan sank further into recession in the third quarter, new European economic indicators showed the downturn there is deepening, and Canada declared itself in recession on Tuesday.
In the United States, negative retail sales data and tepid home sales figures disappointed Wall Street, which traded down after a two-day rally had contributed to sentiment that the stock market could have hit a cyclical bottom.
The global economic crisis has sent oil prices spiraling down from record peaks above $147 a barrel in July, raising concern among members of the Organization of Petroleum Exporting Countries.
Analysts expect the group to reduce output by at least 1 million barrels per day when it meets next Wednesday in Algeria, after agreeing to cut supplies by 2 million bpd since September.
"Oil is on a count-down to OPEC now, and everyone is expecting them to come up with something big -- probably a cut of 1 to 1.5 million bpd," said Rob Laughlin, senior oil analyst at brokers MF Global in London.
(Reporting by Matthew Robinson, Richard Valdmanis, Gene Ramos, and Robert Gibbons in New York; Joe Brock and Christopher Johnson in London; Editing by David Gregorio)
