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LONDON - Oil trimmed losses today after briefly dropping to a 17-month low below US$55 amid fund selling across commodity markets and worries of an economic slowdown in the United States.
High US oil inventories heading into winter, and selling pressure ahead of the expiry of the front-month
US crude contract at the close of trading today, fuelled the selling.
US crude was down 27 cents at US$55.99 a barrel at 1853 GMT after hitting its lowest level since June 14 last year at US$54.86. The price has fallen nearly 30 per cent from the record of US$78.40 in July. London Brent crude rose 38 cents at US$58.92.
"There is rising concern that we could be going into a US economic slowdown," said Rick Mueller, senior oil analyst at consultancy ESAI. "This fall also speaks of a well supplied crude market and a warmer outlook in the US, and with those conditions maybe the market is starting to wake up to the fact that prices shouldn't be near US$60."
There was also widespread talk in the market that a fund was in trouble and unwinding its positions.
Base metals also slid on concern that global demand for raw materials would suffer if the world's largest economy slows. London copper prices fell to their lowest levels since June.
US industrial output data for October yesterday was weak, showing signs of a cooling economy.
Oil markets had traded in a roughly US$58-US$62 barrel range for around six weeks, the longest period of range-bound trading since the same time a year ago.
While the front-month US contract for December was well below that level today, the second-month futures contract for oil in January was still trading near US$58. That contract will become the benchmark on Monday.
"We really can't ignore the fact that it is contract expiry," said Mueller. "As things stand, once that contract is off the board, we'll be back where we were on Monday."
Still, some traders said prices may break below the band, dragged down by ample stocks, a relatively mild start to the US winter and doubts about whether the Organisation of the Petroleum Exporting Countries can enforce output cuts.
Lower oil prices have spurred product consumption, but warmer-than-usual weather has sapped heating oil demand.
The US National Weather Service yesterday forecast warmer-than-normal weather for the US Northeast, the world's top heating oil market, from December until February, although other forecasts are mixed.
Opec producers agreed at an emergency meeting last month to cut supplies by 1.2 million barrels per day (bpd) from November 1, although investors doubt the cuts will be enacted fully.
Opec this week prepared the ground for a further output cut when the group next meets in output in December, citing concern about potentially large rises in inventories next spring if it continues to pump at present levels.
Analysts said the market may be testing the group to find the oil price it wants to defend.
For some longer-term investors who believe markets will get tighter in the years to come as suppliers struggle to meet rising demand, the fall in price represents a buy opportunity.
"I don't think short-term sentiment is looking anything other than negative," said Mark Matthias, chief executive of British investment specialist Dawnay Day Quantum. "But taking a three- to five-year view, I would be a buyer of oil below US$60.
- REUTERS
