Crude Oil Falls a Second Day, Heading for Record Annual Decline

Dec. 31 (Bloomberg) -- Crude oil fell for a second day, heading for a record annual drop, on speculation that U.S. fuel stockpiles are increasing as the recession cuts demand.

U.S. gasoline supplies probably rose last week to the highest since August, according to a Bloomberg News survey conducted before an Energy Department report due today. Confidence among U.S. consumers sank to the lowest level in at least 41 years as Americans grew concerned about keeping their jobs, the New York-based Conference Board said.

Crude oil for February delivery declined as much as 53 cents, or 1.4 percent, to $38.50 a barrel on the New York Mercantile Exchange and traded at $38.51 at 12:16 p.m. Singapore time. Prices are down 60 percent this year, the first annual drop since 2001 when oil fell 26 percent, and the biggest decline since trading began in 1983.

“The fundamentals are very bearish and more bad news will be coming out next year as demand is slowing down,” Hirofumi Kawachi, an analyst with Mizuho Investors Securities, said by phone from Tokyo. “We don’t see any fundamental factor to boost prices.”

Kawachi estimates oil falling to $25 a barrel by the end of next year after rallying briefly in early 2009.

Oil may rebound next year to average $60 a barrel as the Organization of Petroleum Exporting Countries makes record production cuts to counter the deepest economic slump since World War II, according to the median forecasts of 33 analysts compiled by Bloomberg. That would be a 54 percent gain from today’s price.

U.S. Stockpiles

“The indicators are still weak; they’re not really painting a picture of any improvement,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “The timing and magnitude of any recovery next year is still very uncertain.”

Brent crude for February settlement declined as much as 76 cents, or 1.9 percent, to $39.39 a barrel on London’s ICE Futures Europe exchange.

U.S. gasoline stockpiles probably rose 1.7 million barrels in the week ended Dec. 26, from 207.3 million barrels the week before, according to the median of 13 analyst estimates.

Supplies of distillate fuel, a category that includes heating oil and diesel, probably increased 1.5 million barrels. Crude-oil inventories probably dropped 1.45 million barrels last week, the survey showed.

The Energy Department is scheduled to issue its weekly report at 10:35 a.m. in Washington today.

“The one ray of hope is that we are coming into one of the traditional peak periods as far as demand is concerned,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management. “We could get some cold temperatures in the Northern Hemisphere which might provide some upward impetus for the oil price.”

Gaza Strip

A storm may dump 6 inches of snow on Boston tomorrow, while revelers in New York City’s Times Square will have a frigid New Year’s Eve, forecasters say. A second storm will hit the U.S. Northeast Jan. 2, though it is too early to tell what that system will bring to the region, said Bill Simpson, a meteorologist with the National Weather Service in Taunton, Massachusetts.

Oil rose more than 6 percent in each of the two trading days through Dec. 29 on concern that supplies from the Middle East may be disrupted amid a conflict between Israel and Hamas in the Gaza Strip. In the deepest strike yet into Israeli territory, a rocket last night hit the city of Beersheba, 40 kilometers (24 miles) from Gaza.

“The dominant theme in the oil market remains that weak demand outlook which is overshadowing the current geopolitical issues in the Middle East,” Commodity Warrants’ Hassall said.