October 31, 2008 / 2:59 AM / 11 years ago

Oil drops 3 percent, set for record monthly slide

NEW YORK (Reuters) - Oil fell nearly $2 on Friday as weak demand and the global economic crisis put crude on track for the biggest monthly drop ever.

A man waits to be served at a petrol station in Dhaka October 27, 2008. REUTERS/Andrew Biraj

U.S. crude fell $1.82, or almost 3 percent, to $64.14 a barrel by 12:00 p.m. EDT. It is down by around 35 percent for October, its steepest monthly decline to date as demand in the United States and other big consumer nations slows.

London Brent crude traded down $1.98 to $61.73.

The U.S. Commerce Department reported that American consumers cut spending for the first time in two years in September, as confidence drained.

This coincided with data released on Thursday which showed that U.S. gross domestic product contracted at an annual rate of 0.3 percent for the third quarter.

It was the sharpest economic decline in seven years for the United States, the world’s largest oil consumer, provoking further falls across commodities and global stock markets, also poised for their worst month yet.

A stronger U.S. dollar, which makes dollar-denominated assets less attractive to buyers, further pressured commodities.

“It could even take a large part of 2009 before we see an increase in demand again,” said Peter Beutel, president of trading consultants Cameron Hanover in Stamford, Connecticut.

“In the meantime, oil prices are likely to continue to react to equities moves, the U.S. dollar’s relationship to the euro, OPEC production cuts and the weather,” he added.

In three months oil has wiped out gains that took more than a year to build, down more than half since it struck a record high of $147.27 in July.

Demand has shrunk amid economic weakness across the world, with a slump in global stock markets outweighing any sign of tighter supplies from OPEC.

Following a decision last week by the Organization of the Petroleum Exporting Countries to cut output by 1.5 million barrels per day (bpd), evidence has begun to emerge the group means what it said.

Kuwait on Friday informed customers it was cutting crude supplies by 5 percent in November.

Earlier in the week, Nigeria and the United Arab Emirates told customers they would receive less oil, but top exporter Saudi Arabia has yet to inform customers of any fresh curbs.

Venezuelan Oil Minister Rafael Ramirez said on Thursday OPEC should cut oil output by another 1 million bpd — possibly before its next scheduled meeting in December — and should set a minimum price target of $70 or $80 a barrel.

Additional reporting by Gene Ramos and Robert Gibbons in New York, Joe Brock in London and Maryelle Demongeot in Singapore; Editing by David Gregorio

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