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By Randy Fabi
LONDON, Jan 22 (Reuters) - Oil fell by more than $4 on
Tuesday to a new six-week low as global stock markets swooned on
the growing prospect of a U.S.-led economic recession.
U.S. crude <CLc1> fell as low as $86.11 a barrel, down $4.46
from Friday's settlement price. By 0846 GMT, the front-month
contract traded $3.86 lower at $86.71.
The NYMEX exchange did not set a settlement price on Monday
as the open-outcry trading floor was shut for a public holiday.
Electronic trading late Monday had U.S. crude at $88.69.
London Brent crude <LCOc1> fell $1.73 to $85.78 a barrel.
"Today's markets will be driven by global equity values,
especially in the U.S. session," said Robert Laughlin of MF
Global. "Caution may be a wise word today."
Major Asian stock markets fell as much as 8 percent as
panicky investors feared a U.S. recession could derail global
economic growth, and a sharp drop in U.S. stock index futures
pointed to heavy selling in New York later on Tuesday.
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WANING DEMAND
Most of the commodity complex also took a beating as traders
feared weaker demand for raw materials across the globe.
"The feeling now is the economic fall-out from the subprime
issue in the United States might spread out to Japan and
Europe," said Tobin Gorey, a commodities strategist at
Australia's Commonwealth Bank.
There is already some evidence of weakening demand for
refined fuels such as heating oil and gasoline due to milder
winter weather and higher prices, leading some refiners in the
United States, Europe and Northeast Asia to cut back output.
"Due to lacklustre margins, there have been discretionary
economic run cuts... In the meantime crude will have to ease for
margins to be supported," said Societe Generale in a research
note.
The negative sentiment that pervaded across financial
markets was coupled with selling by traders who were raising
cash to cover margin calls in equity markets, traders said.
"The sell-off is not just on oil, it's weighing in on
everything," Gorey added.
Price movements may also be exaggerated by the expiration of
U.S. crude's February contract at the end of trading on Tuesday,
traders said. The March contract traded down $3.87 to $86.05 a
barrel.
Oil has now fallen about 12 percent from a record high of
$100.09 hit on Jan. 3, making it increasingly less likely that
OPEC would bow to U.S. pressure to raise production when it
meets in just over one week's time to discuss policy.
On Monday U.S. Energy Secretary Sam Bodman repeated a call
for more oil from top exporter Saudi Arabia to try to bring down
prices further, but ministers from Latin America said they saw
no need to take action. []
Venezuela's Rafael Ramirez said on Monday he did not believe
the Organization of the Petroleum Exporting Countries needed to
increase output, a view echoed by Galo Chiriboga from recent
OPEC joiner Ecuador. [] []
(Additional reporting by Luke Pachymuthu in Singapore; editing
by James Jukwey)
