On December 19 the New York contract for January plunged to 32.40 dollars a barrel, lowest reading since February 9, 2004 as investors raced to sell before the contract's expiry. It ended the year 2008 at $44.6 a barrel in after-hours electronic trading on the New York Mercantile Exchange or 53.5 percent lower than a year ago, the first annual decline since 2001 and the biggest drop since futures trading started in 1983.
The outlook for oil remains weak. The International Energy Agency cut its world oil demand forecast by one million barrels a day on expectations a squeeze on energy consumption. In its grimmest forecast on demand in years, the Paris agency said it expected 2009 global crude demand to contract 0.6 percent after dropping 0.3 percent last year, the first two-year dip in consumption in 26 years, since 1982-83.
The Organization of Petroleum Exporting Countries (OPEC), which produces 40 percent of the world's crude, has also lowered its energy demand forecast for 2009, saying in its January report that it expects world demand for crude will fall 180,000 barrels per day in 2009 from the previous year.
Concerns center on the U.S., the world's largest consumer of oil, where falling consumer demand and rising unemployment are undermining demand for crude. Commercial crude-oil inventory in the U.S. has increased by nearly 10 percent since September.
Though global crude-oil demand has waned, the daily supply is still rising. OPEC has announced 4.2 million barrels a day of production cuts since September, moves that investors have so far ignored. OPEC has pledged to curb oil production. The wild card is oil producers outside OPEC, whether they increase output and if so, how much that will compensate for reduced supplies from OPEC nations.
Given the OPEC’s pledge, futures traders don’t expect prices to stay this low for long; they expect the price of oil to rise in 2009.
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