Oil prices have fallen for the sixth consecutive dayFont Size:...

Oil prices have fallen for the sixth consecutive dayFont Size: Decrease Increase Print Page: Print Cath Hart | January 14, 2009
Article from: The Australian
LACKLUSTRE demand and burgeoning energy stockpiles in the US have driven down oil prices for the sixth consecutive day.

It also dragged the price of crude below $US38 a barrel.

Trade on the New York Mercantile Exchange yesterday saw the price of light sweet crude for delivery in February fall to $US37.96, a world away from the record high of $US150 set in June last year. It fell to $US36.50 in Singapore yesterday.

Although escalating tensions in the Middle East recently sparked a brief rally in the oil price, analysts said that weak economic data had focused market attention on the possibility of recession rather than the potential for the conflict to tighten demand.

Trading over the past six days has seen the price of crude oil fall by 24 per cent.

It hit a four-year low of $US32.40 on December 19.

While the price slump has sparked more belt-tightening among companies and governments already shell-shocked by the credit crunch, consumers have breathed a sigh of relief as respite at the bowser reduces pressure on household budgets.

The national average retail petrol price last week fell 1.6c to 103.1c per litre, while the retail price of diesel fell 2.1c to 128.1c per litre, according to the Australian Institute of Petroleum.

In contrast, Kuwait, OPEC's third-largest producer, yesterday revealed it would slash government spending from April after the the oil-rich nation's central bank confirmed that revenue from oil had more than halved.

Analyst Peter Strachan, the author of the StockAnalysis report, said the oil price had been driven down by dramatic declines in demand of more than 6 per cent per day.

"The demand destruction began last year with the impact of high oil prices has continued as global industrial production plunges as a result of the global financial crisis," he said.

OPEC's production cuts had failed to stop a continuing rise in inventories, indicating that the consequences of the ongoing price slump would include further OPEC cuts, he said.

"Globally, oil companies are shutting up their development plans and deferring or cancelling exploration drilling," Mr Strachan said.

"Service companies, such as Halliburton and Stumberger, are laying of staff as work evaporates -- eventually, non-OPEC production will fall, under the influence of a lack of development drilling and deferral of new projects, but you will not see the impact of this of production until the September quarter," Mr Strachan added.

Smaller oil and gas companies will fail as a result, leaving "bargains for companies with cash", he said.

Deutsche Bank energy analyst John Hirjee said he was not expecting the oil price to rally this year.

"For the 2009 calender year we're expecting the West Texas Intermediate oil price to average $US45 a barrel," Mr Hirjee said.

"We do see the possibility of oil prices touching around $US30 a barrel, but they won't be there long because there will be a supply response."

Mr Hirjee said companies would be budgeting for an oil price of $US40-$US60 a barrel when planning projects.

Recent analysis by Deutsche Bank found that Queensland's emerging coal seam gas sector was particularly tolerant of lower oil prices.

"The contracting and services sector will be impacted and we will see an increase in mergers and acquisitions because asset prices are so much cheaper," Mr Hirjee said.

"One thing we think will be reviewed will be exploration budgets."