Last updated: November 12, 2008 9:21 pm

Oil hits 20-month low at $56 a barrel

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Crude oil sank to a fresh 20-month low even as the International Energy Agency warned of a potential global supply crisis due to delays in investment arising from price weakness and the credit squeeze.

The energy watchdog said there was a real risk that under-investment would cause an oil supply crunch with large gaps opening up between demand and supply after 2010 as project delays and cancellations took effect.

However, oil prices extended their declines with revised economic growth forecasts from the World Bank weighing on sentiment.

Nymex December West Texas Intermediate lost $3.17 to $56.16 a barrel.

ICE December Brent dropped $3.34 to $52.37 a barrel.

The World Bank on Tuesday cut its 2009 growth forecast for developing countries to 4.5 per cent from a previous projection of 6.4 per cent, citing turmoil in financial markets and slower exports.

It warned that even this scenario could be optimistic, adding that some developing countries could face negative growth.

The continuing slide for oil prices has prompted talk that Opec will make further efforts to stabilise the market with supply cuts.

Several Opec ministers have suggested that the cartel meet in Cairo as early as November 29, during the annual gathering of the Organisation of Arab Petroleum Exporting Countries, rather than wait until the scheduled meeting on December 17.

“With oil prices threatening to test the key $50 a barrel level, we would not be surprised to see Opec get together much earlier than planned”, said Ed Meir, of MF Global.

In Brazil, Petrobras, the state-controlled oil company, said output this year would be lower due to delays in bringing production platforms on stream.

Petrobras said crude production was now estimated to be 1.89m to 1.9m barrels a day compared with a previous projection of 1.95m b/d.

Base metals were mixed yesterday amid continuing anxiety about the outlook for demand.

Aluminium shed 2.7 per cent to $1,928 a tonne, in spite of news of further supply cuts.

Vimetco, the Dutch aluminium producer, said it would cut output in China by 15,000 tonnes, on top of an 80,000 tonnes reduction announced last month.

Copper eased 0.6 per cent to $3,640 a tonne while nickel lost 0.9 per cent at $10,700 a tonne, but zinc bounced 3.5 per cent to 1.145 a tonne.

Gold fell 1.6 per cent to $719 a troy ounce after touching a low of $714.80, under pressure from dollar strength.

The president of China’s largest gold miner said the country would produce between 280 and 300 tonnes of the precious metal in 2008, up from 270 tonnes in 2007, due to the opening of new mines.

But Suki Cooper, of Barclays Capital, said: “Despite the growth in output from some countries such as China, it will be insufficient to offset the decline in output from mature
countries, leading to a decline in overall global gold output.”

The United Nations’ Food and Agriculture Organisation reported a sharp decline in wholesale food prices in October.

Wholesale food prices fell a record 12.8 per cent compared with September.

The FAO’s wholesale food price index dropped to 164 points, down 5.7 per cent in the past 12 months.

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