Oil Falls as U.S. Says Use Will Drop for First Time Since 1983

Dec. 9 (Bloomberg) -- Crude oil fell more than $1 a barrel, capping a 23 percent drop since Nov. 26, after the U.S. forecast that annual demand will decline for the first time since 1983.

Global consumption will average 85.75 million barrels a day in 2008, down 50,000 barrels from 2007, the Energy Department said in its monthly Short-Term Energy Outlook today. As fuel use drops, OPEC is discussing making the second output cut in less than two months at a Dec. 17 meeting.

“The wider economy is the main driver of the oil market right now,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “I think we’ll stay in a $40-to-$45 range until we have a better idea what OPEC is going to do.”

Crude oil futures for January delivery fell $1.64, or 3.8 percent, to settle at $42.07 a barrel on the New York Mercantile Exchange.

Global consumption last fell in each of the four years ended in 1983, according to the department. Demand will decline an additional 450,000 barrels a day next year to 85.3 million barrels a day, the department said.

The International Energy Agency and the Organization of Petroleum Exporting Countries have also lowered demand forecasts over the past month because of the economic contraction.

The IEA reduced its 2009 estimate by 670,000 barrels a day, or 0.8 percent, to 86.5 million barrels a day in a Nov. 13 report. The agency is scheduled to release its next report on Dec. 11. OPEC cut its forecast for oil consumption next year by 530,000 barrels a day, or 0.6 percent, to 86.68 million barrels a day, in its monthly oil market report on Nov. 17.

‘Stepping Stones’

“I look at these numbers as stepping stones,” said Peter Beutel, president Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “They are a lagging indicator and will probably fall further in the months ahead.”

Oil futures, which have dropped 56 percent this year, are heading for the biggest annual decline since at least 1987, as global economies falter. The International Monetary Fund sees recessions next year in the U.S., Japan and the euro area.

U.S. stocks fell after companies from FedEx Corp. to Danaher Corp. forecast earnings that disappointed investors as the recession crimped sales. The Dow Jones Industrial Average declined 242.85, or 2.7 percent, to 8,691.33. The Standard & Poor’s 500 Index dropped 21.03 points, or 2.3 percent, to 888.67.

Gasoline Drop

The decline in crude oil has sent both gasoline futures and pump prices lower this year.

Gasoline for January delivery fell 2.54 cents, or 2.6 percent, to settle at 93.64 cents a gallon in New York. Futures touched 89.5 cents a gallon on Dec. 5, the lowest since the contract was introduced in October 2005.

U.S. pump prices last week fell to $1.699 a gallon, the lowest since February 2004, the Energy Department said yesterday.

OPEC should make a “substantial” output cut when it meets, Shokri Ghanem, Libya’s top oil official, said yesterday. OPEC agreed to cut daily output by 1.5 million barrels in October.

“OPEC is looking to find a way to bolster prices,” said Steve Maloney, a risk-management consultant for Stamford, Connecticut-based Towers Perrin. “The last cut has clearly not been enough.”

A government report tomorrow is forecast to show that U.S. crude-oil inventories rose 1.3 million barrels last week, according to the median of 14 responses in a Bloomberg News survey. The report will probably show that U.S. supplies of gasoline and distillate fuel, a category that includes diesel and heating oil, dropped.

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

Inventory ‘Cues’

“The market will get cues from tomorrow’s DOE report,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “There are two bigger events coming up. The IEA report from Paris on Thursday is likely to show that demand destruction is continuing and there is the all-important cartel meeting on Dec. 17.”

Brent crude oil for January settlement declined $1.89, or 4.4 percent, to settle at $41.53 a barrel on London’s ICE Futures Europe exchange.