Oil deepened losses to a new six-week low yesterday as global stock markets swooned on the growing prospect of a US-led economic recession.
London's Brent crude fell US40c to US$87.11 a barrel ($117.76) while US crude traded at US$88.20 a barrel, down about US60c from late Monday dealing. The Nymex exchange did not set a settlement price as the open-outcry trading floor was shut for a public holiday.
On Monday Asian and European bourses took a hammering on mounting concerns that an economic stimulus proposal by US President George W. Bush last week would not be sufficient to stave off a recession.
That drubbing continued yesterday with South Korean and Australian markets nursing falls of almost 5 per cent, while most of the commodity complex also took a beating as traders feared weaker demand for raw materials across the globe.
"The feeling now is the economic fall-out from the sub-prime issue in the US might spread out to Japan, Europe," said Tobin Gorey, a commodities strategist at Australia's Commonwealth Bank.
The overwhelmingly negative sentiment was coupled with selling by traders who were raising cash to cover margin calls in equity markets, traders said.
"The sell-off is not just on oil, it's weighing in on everything," Gorey added.
Oil has now fallen nearly 12 per cent from a record high of US$100.09 on January 3, making it increasingly less likely that Opec would bow to US pressure to raise production when it meets injust over one week's time to discuss policy.
On Monday, US Energy Secretary Sam Bodman repeated a call for more oil from top exporter Saudi Arabia to try to bring down prices further, but ministers from Latin America said they saw no need to take action.
Venezuela's Rafael Ramirez said he did not believe Opec needed to increase output, a view echoed by Galo Chiriboga from new Opec member Ecuador.
There is already some evidence of weakening demand for refined fuels such as heating oil and petrol due to milder winter weather and higher prices, leading some refiners in the US, Europe and northeast Asia to cut back output.
"Due to lacklustre margins, there have been discretionary economic run cuts," said Societe Generale in a research note.