Oil slips to $64 on fears of slump in demand

Reuters LONDON

OIL prices fell below $65 Thursday to reverse earlier gains, pressured by concerns demand might continue to weaken as the US economy shrank in the third quarter. The world's largest economy shrank at a 0.3% annual rate in the third quarter, the sharpest contraction in the US in seven years. The spectre of recession prompted businesses to cut investment and unnerved consumers, who slashed spending at the sharpest rate in 28 years.
    US light crude slipped by more than $2 and it was trading was sown $3.05 at $64.45 a barrel by 22:00 pm IST. London Brent crude was down by $3.03 at $62.44.
    "Oil markets seem to be pricing for a deep and long recession that will derail oil demand growth this year and next," Jan Stuart with UBS said in a research note.
    Oil has more than halved from its record high of $147.27 struck in July and is down by 30% so far this month, putting it on track for its biggest ever monthly fall. Earlier, it rose to as high as $70.60, supported by a weak dollar and hopes that interest rate cuts in the US and China would bolster the world economy.
    Asian stock markets gained for a third day and European shares opened higher on signs that investors were rediscovering an appetite for risk in response to global efforts to prevent a deep recession.
    The US Federal Reserve cut interest rates by half a percentage point, taking its target for overnight bank lending to 1%, the lowest since 2004, in an attempt to revive the sagging economy.
    China also cut its interest rates on Wednesday, kicking off what is likely to be a global round of interest rate cuts, with Norway already having followed suit, and Taiwan and Hong Kong cutting rates on Thursday. The Fed cut pushed the dollar lower, making dollar-priced commodities like oil cheaper and more attractive for holders of other currencies.
    Also supporting oil were Opec's decision last week to cut output by 1.5 million barrels per day, or about 5%, to prop up prices and hints that it might further reduce supply. Nigeria's state oil company said in a statement that it would reduce crude oil export volumes by 5% in November and December because of the Opec cutback.