A modest rally failed to hold Monday under the weight of global economic worries, with U.S. benchmark crude-oil futures prices falling for a fifth-straight day to end at a one-month low.
"The market is caught in the cross hairs of economic uncertainty," said Gene McGillian, broker and analyst at Tradition Energy, citing a host of factors including the continuing efforts to avoid the so-called "fiscal cliff" in the U.S. and new concerns in Italy, where the prime minister's plan to resign is stirring doubts about the health of the euro zone's fifth biggest economy.
Added to the heady mix that is repelling market bulls is the two-day meeting of the U.S. Federal Reserve's policy-making board beginning on Tuesday and OPEC oil output policy talks set for Wednesday.
The Organization of the Petroleum Exporting Countries is widely expected to keep its oil output unchanged, even as output is running 1 million barrels a day above agreed levels and estimates of demand for its oil.
Light, sweet crude oil futures for January delivery on the New York Mercantile Exchange settled 37 cents lower at $85.56 a barrel, the lowest price since Nov. 15. A late selloff in the final 30 minutes of floor trading pushed the drop over the last five trading sessions to 4%, or $3.53 a barrel.
ICE North Sea Brent for January settled up 31 cents at $107.33 a barrel, snapping a five-day losing streak after dropping 3.9% last week.
The price drop comes amid sliding demand and growing inventories in the U.S., the world's biggest oil consumer. Surging output from U.S. shale-oil fields is cutting U.S. reliance on oil imports and complicates OPEC talks. U.S. output is the highest in decades, and currently averaging about 950,000 barrels a day above a year earlier. Year-to-date output through November was up nearly 10%, or 550,000 barrels a day.
"When demand is up 1.5 million barrels a day, that's not such a big deal," said Andy Lebow, a broker at Jefferies Bache. But combined global oil growth in 2012 and 2013 is forecast to average about half that level.
Still, Mr. Lebow said OPEC isn't likely to trim its oil output until the price of North Sea Brent crude drops below $100 a barrel, the comfort level for OPEC kingpin Saudi Arabia.
Prices were propped up by news that China, the world's second-biggest oil consumer, posted a 10.1% rise in industrial output in November, the fastest growth rate since March and above analysts' expectations. China also boosted refinery runs in the month but saw crude-oil imports drop from October while rising from a year earlier.
The month-on-month drop in crude imports meant refiners were running down inventories, raising questions about the government's strategy on emergency stockpiles. China steadily has been building up a cushion of supply to guard against domestic shortfalls, a move that some analysts said was keeping prices higher in recent months than they would have been otherwise. The market is trying to puzzle out if lower imports will continue, opening the door for still-lower prices, or whether they will pick up again, keeping a floor under prices.
U.S. oil inventory data due out Wednesday also could impact prices this week, traders said. Analysts surveyed by Dow Jones expect upcoming data to show crude stocks fell 1.7 million barrels last week as refiners boosted operations. The figures also are expected to show snug gasoline and distillate (diesel/heating oil) inventories rose by 2.5 million and 1.5 million barrels, respectively.
January heating oil futures prices fell for a sixth day, to the lowest level since Aug. 2. Prices settled 1.91 cents lower at $2.8962 a gallon on Monday and have lost more than 16 cents, or 5.3%, so far in December.
Reformulated gasoline blendstock futures for January settled up 0.07 cent at $2.5981 a gallon, after trading at one-month lows last week.
Copyright (c) 2012 Dow Jones & Company, Inc.
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