Oil falls below $75 a barrel on global concerns

Commodities prices fell across the board, with oil tumbling below $75 a barrel on Wednesday, amid mounting investor concern that recent government and central bank actions to unfreeze credit markets will fail to avert a global recession.

The Reuters-Jefferies CRB index, a global benchmark for commodity prices, fell to a fresh 22-month low of 288.70 points, down almost 40 per cent from July’s all-time high.

Opec warned of “dramatically worsening conditions” in the credit market and a “negative impact on the real economy”, while Rio Tinto, one of the world’s largest mining companies, signalled that Chinese commodities demand was weakening.

The cartel said that even if governments were successful in calming equity markets and unfreezing credit markets in the near future, “the fallout on the real economy from the financial market headwinds is expected to be considerable”.

“There is mounting evidence that the US economy might already be in the midst of a recession,” it added, warning that “the same applies to the EU and Japan” and that the crisis could spill over to emerging countries, which “until lately appeared to be partly shielded from significant economic contagion”.

The warning came as oil prices in New York dropped below the $75 a barrel level for the first time since September 2007. Nymex November West Texas Intermediate hit an intraday low of $74.57 a barrel, and later was trading $2.88 down at $75.75.

ICE November Brent fell to a low of $70.21 and later traded $3.09 down to $71.48.

Opec said it would need to pump about 31.3m barrels a day in the first quarter of next year to balance the market, well below its current output of 32.2m b/d. The forecast opens the door for a large production cut when the cartel meets on November 18.

Iran, one of Opec’s most hawkish members, reiterated that the cartel should cut production.

Naumam Barakat, vice-president of global energy futures at Macquarie, said: “The Saudis need to throttle back output significantly otherwise we are heading towards $50 a barrel.”

JP Morgan cut its oil price forecast for next year to $74.75 a barrel, down from last month’s projection of $100.5 a barrel.

Lawrence Eagles, head of commodities research at JP Morgan, said the oil market was in effect caught in a four-way oil tsunami: financial turmoil, economic weakness, great refining capacity and rising oil supply.

“Only a very cold winter or some significant unforeseen supply disruptions will prevent a significant market supply surplus building up,” Mr Eagles said.

Other commodities markets also fell sharply, with key base metals posting losses above 7.0 per cent on the day, and agricultural raw materials falling between 2 and 3 per cent.

On the London Metal Exchange, copper for delivery in three months dropped 7.1 per cent to $4,923 a tonne, while aluminium fell 5.1 per cent to $2,175 a tonne.

Agricultural commodities also fell, with corn in Chicago flirting with the $4.0 a bushel level, and approaching a 10-month low.

But in spite of the fall of wholesale food prices, Jacques Diouf, director-general at the United Nations’ Food and Agriculture Organisation, warned the financial crisis meant countries faced difficulties securing agricultural commodity supplies.

“Last year it was the frying pan,” Mr Diouf said ahead of today’s World Food Day. “Next year could be the fire.”