Nymex Crude Declines As Demand Fears Gather

Light, sweet crude for December delivery settled $3.90, or 5.8%, lower at $63.91 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange settled down $4.84 at $60.48 a barrel.

Nymex crude is down more than $80 from its July peak, pressured by softening demand, an exodus of investment funds and a stronger dollar.

The grim demand picture was reinforced by a sequence of manufacturing reports released Monday. U.S. factory activity contracted, with an Institute for Supply Management index at its lowest since 1982. In Europe, manufacturing in the euro zone declined at its fastest pace on record last month, according to a survey of purchasing managers. Separate data showed U.K. manufacturing shrinking for the sixth consecutive month. In China, manufacturing activity also dimmed, two key purchasing-manager indexes showed.

"It's really about the manufacturing numbers today, in the U.S. and globally," said Phil Flynn, a broker with Alaron Trading Corp. in Chicago. "It's been a very good forward indicator of future energy demand. If the manufacturing sector in the U.S. is at a 26-year low and globally the manufacturing numbers were poor as well, that seems to suggest demand is going to get worse before it gets better."

China's seemingly insatiable demand growth has underpinned most forecasts for increased world oil consumption next year. The International Energy Agency's latest outlook, set for an update next week, sees China consuming 420,000 more barrels a day in 2009 than in 2008, comprising 61% of the world's demand growth.

With China's red-hot economy also now showing signs of cooling, analysts at Credit Suisse said Monday they instead see its demand growing a mere 100,000 barrels a day, or 0.2%, and total world demand falling by 300,000 barrels a day.

"The oil market news is understandably dominated by repeated, rapid downward lurches in the demand curve, and these may continue for a while yet," analysts led by Mark Flannery said in a note.

In a reflection of eroding demand among drivers, gasoline futures traded at a $6-a-barrel discount to crude on Monday, suggesting a loss for refiners in making the fuel. The so-called "gasoline crack" has been negative for most of the past month.

In October, General Motors Corp.'s (GM) U.S. sales plunged 45%, while Ford Motor Co. (F) recorded a 30% drop and Toyota Motor Corp. (TM) reported a 23% decline, according to reports issued Monday.

Front-month December reformulated gasoline blendstock, or RBOB, fell 13.34 cents, or 8.9%, to settle at $1.3625 a gallon. December heating oil settled down 10.14 cents, or 4.9%, at $1.9828 a gallon.

Crude has been trading between $60 and $70 a barrel since late October as the market weighs weak economic and demand outlooks against the Organization of Petroleum Exporting Countries' recent moves to trim output.

Some analysts said oil will remain in a holding pattern at least until the results of Tuesday's U.S. presidential election are in. Few see a direct link between the outcome and oil prices, however.

"Regardless of who wins, I don't view it as a huge price driver," said Jim Ritterbusch, president of energy trading advisory firm Ritterbusch and Associates in Galena, Ill.

Source : Dow Jones Newswires