Oil Prices Plummet Amidst Deepening Recession

Strategic Insights -

U.S. economic data released on January 28, 2009, highlighted a worsening recession, leading to lower crude futures prices. New jobless claims soared, and orders for durable goods fell, casting doubt on a quick recovery in oil demand. The U.S. Commerce Department was expected to report a significant contraction in gross domestic product, further weighing on the market. Weakening demand pushed oil into inventories, with oil stocks rising by 6.2 million barrels last week as refiners cut back on crude processing.

Key Takeaways:

  • U.S. oil demand dropped by approximately 800,000 barrels a day from a year earlier, according to the U.S. Department of Energy.
  • New jobless claims rose to 588,000 in the week ended January 24, near the highest number seen since 1982.
  • Orders for durable goods fell by more than expected, indicating weakened economic activity.
  • The U.S. Commerce Department reported a significant contraction in gross domestic product, further exacerbating the recession.
  • OPEC's production cuts of 4.2 million barrels a day were insufficient to address the oversupply of oil.
  • Large oil companies outside of OPEC began reducing investment, contributing to a decline in future production.
  • ConocoPhillips (COP) cut its 2009 budget by 18%, while BP PLC (BP) Chief Executive Tony Hayward stated that investment was essential for long-term oil price stability.

Statistics:

  • Crude futures traded $1.66 lower at $40.50 a barrel.
  • Brent crude on the ICE futures exchange traded 65 cents lower at $44.25 a barrel.
  • Oil stocks rose by 6.2 million barrels last week.
  • New jobless claims rose to 588,000 in the week ended January 24.
  • Orders for durable goods fell by approximately 6.5%.
  • OPEC's 4.2 million barrels a day production cut targeted the end of 2008.
  • ConocoPhillips cut its 2009 budget by 18%.
  • BP PLC Chief Executive Tony Hayward stated that investment was essential for long-term oil price stability.

Sources:

  • Dow Jones Commodities News
  • Comtex
  • U.S. Department of Energy
  • U.S. Commerce Department
  • Tradition Energy
  • Addison Armstrong, analyst with Tradition Energy
  • Abdalla Salem El-Badri, OPEC's secretary general
  • ConocoPhillips (COP)
  • BP PLC (BP)
  • Dow Jones Newswires
  • Brian Baskin, Dow Jones Newswires