Oil falls below $56 as Japan slips into recession

November 17, 2008 By midday in Europe, light, sweet crude for December delivery was down $1.23 to $55.81 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.20 Friday to settle at $57.04.

In London, January Brent crude fell $1.17 to $53.07 on the ICE Futures exchange.

Japan, the world's second-largest economy, said Monday it slid into a recession for the first time since 2001 after gross domestic product contracted at an annual pace of 0.4 percent in the third quarter after a shrinking 3.7 percent in the second quarter. Japan now joins the 15-nation euro-zone in a recession, defined as two straight quarters of GDP contraction.

"Markets are very worried about the international economic outlook, about oil consumption," said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. "As data is released in the U.S., Europe and other countries, investors get a reminder of the economic problems in the developed world."

Oil prices have tumbled about 62 percent since peaking at nearly $150 a barrel in mid-July.

"With the world's largest economies slowing down remarkably, oil demand outlook is worsening," said JBC Energy in Vienna, Austria.

Comments Sunday from OPEC President Chakib Khelil, downplaying the possibility that the group could cut production at a meeting this month, also weighed on prices.

On Saturday, Iran called on the Organization of Petroleum Exporting Countries to reduce output quotas by up to 1.5 million barrels a day a meeting later this month. But Khelil said OPEC, which accounts for about 40 percent of world crude supply, hasn't yet fully enforced previous quotas and the group needs more data before it decides to cut production.

Iran's call for more cuts is a "wish," Khelil said. OPEC, which cut quotas by 1.5 million barrels a day last month, plans to meet for an emergency session on Nov. 29 in Cairo, Egypt, and will meet again in Oran, Algeria, on Dec. 17.

"The short-term trend for oil prices is possibly still to the downside," Moore said. "But as the OPEC cuts start to take surplus out of the market, this tightening will eventually give support to the oil price."

Oil prices were down despite a weaker U.S. dollar as investors seemed more affected by falling global stock markets.

By midday in Europe, the FTSE 100 index of leading British shares was down 1.3 percent, Germany's DAX was lower by 1.5 percent and the CAC-40 in France was off 1.6 percent.

Investors often buy oil futures as a hedge against inflation and a weaker dollar and sell when the dollar gains.

The euro rose to $1.2672 Monday from $1.2602 on Friday while the dollar fell against the Japanese yen to 96.38 yen from 97.57 yen on Friday.

In other Nymex trading, gasoline futures fell 2.21 cents to $1.217 a gallon. Heating oil dropped 1.78 cents to $1.814 a gallon while natural gas for December delivery rose 5.8 cents to fetch $6.37 per 1,000 cubic feet.


Associated Press writer Alex Kennedy in Singapore contributed to this report.

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