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Oil tumbles below USD 40 for first time since 2004
Published on 19 Dec. 2008 12:25 AM IST
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Oil prices tumbled below USD 40 for the first time since the summer of 2004 despite an announcement from OPEC of a record production cut of 2.2 million barrels a day. Markets had already priced in a vastly reduced flow of oil and traders focused instead on troubling economic data that point to a long and severe recession. Light, sweet crude for January delivery tumbled 8 %, or USD 3.54, to settle at USD 40.06 on the New York Mercantile Exchange yesterday. Benchmark crude prices fell as low as USD 39.88, a price last seen in July 2004. "There's just so much oil in inventory out there right now," said Michael Lynch, president of Strategic Energy & Economic Research. "Nobody wants to buy this stuff." Crude prices have fallen so low, producers have leased supertankers to store the oil at sea, hoping that oil will rebound. US gasoline inventories continued to rise, the government reported, providing further evidence of a major pullback by American motorists. Demand for gasoline over the four weeks ended December 12 was 2.7 % lower than a year earlier. OPEC had already announced cuts totalling 2 million barrels earlier this year, also with little effect. The unprecedented production cuts and the market reaction show just how fast energy demand has fallen during the worst economic downturn in at least a generation. "You've got a commodity that people are buying less of because they can't afford to buy more," said Phil Flynn, an analyst at Alaron Trading Corp. "People are fearful. They have a lack of confidence in the economy. They're closing their factories."

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