World News

Oil drops $1 on global recession fears

NEW YORK (Reuters) - Oil dropped $1 on Monday as Japan became the latest major economy to fall into recession, stoking concerns that global fuel demand will fall further.

Worries about the global economy rose after Citigroup announced it would cut 52,000 jobs. A survey by the Philadelphia Federal Reserve showed the U.S. economy fell into a recession last spring and forecast it would contract sharply this quarter.

U.S. crude traded down $1.08 to $55.96 by 7:11 p.m. British time. Slumping demand has sent crude down from a record over $147 a barrel in July to $54.67 last Thursday, the lowest level since January 2007.

London Brent crude fell $1.12 to $53.12 a barrel.

“The stock market is easing off and that has caused crude to fall off too,” said Phil Flynn, analyst for Alaron Trading in Chicago. “Earlier news about the Saudi supertanker hijacking caused a pop in prices, but now demand considerations are taking hold again.”

Somali pirates captured a fully laden Saudi supertanker far off East Africa, seizing the biggest vessel ever hijacked with a cargo of oil worth more than $100 million.

Japan surprised markets with data showing the world’s second-biggest economy fell into its first recession in seven years as the financial crisis curbed demand for Japanese exports.

OPEC became the latest industry group to cut its 2009 global demand forecast, adding to signs the producer group could cut production further to stem the price drop.

U.S. stocks slipped on the dour economic news while debt prices reflected an aversion to risk.

Since early September OPEC has agreed to remove around 2 million barrels per day (bpd) from oil markets, and several OPEC members want more cuts. Iran is calling for another 1 million to 1.5 million bpd in output cuts.

OPEC has not yet called a full-blown policy meeting for the Cairo gathering of Arab oil ministers on November 29. OPEC’s next regularly scheduled meeting will take place in December.

“I think prices are on a fast track down,” Kuwait’s Oil Minister Mohammad al-Olaim told Reuters.

“So ministers have to take that into consideration (in Cairo). More probably the decision to keep supplies unchanged or to cut will be taken in Algeria. The Cairo meeting will be a consultative meeting.”

Reporting by Matthew Robinson, Robert Gibbons, and Gene Ramos in New York; David Sheppard, Christopher Johnson in London; Fayen Wong in Perth; Editing by Jim Marshall