Price Of Oil Drops Below $40 A Barrel

Gas spills out as a customer tops off her fuel tank in Lawrence, Mass., Dec. 18, 2008.
AP Photo/Elise Amendola
Oil prices fell below $40 a barrel Monday in Asia as investors looked to key U.S. corporate results this week for indications of the health of the world's largest economy and demand for crude.

Light, sweet crude for February delivery was down 98 cents to $39.85 a barrel by midafternoon in Singapore in electronic trading on the New York Mercantile Exchange. The contract on Friday fell 87 cents to settle at $40.83.

Steel producer Alcoa, chip maker Intel and biotech company Genentech are expected to report fourth quarter results this week, giving investors a gauge of how deep the current recession may be.

"Given that we're likely to see quite a few rather poor fourth quarter earnings reports, downward pressure will continue to be exerted on oil," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Worries about the macroeconomic outlook will continue to constrain oil."

Oil prices fell 17 percent last week, weighed down by fears that rising U.S. unemployment will undermine crude demand.

The Labor Department said Friday that employers slashed 524,000 jobs in December and 2.6 million jobs for all of 2008. The nation's unemployment rate jumped to 7.2 percent, the highest since 1993.

Crude prices have fallen despite a three-week conflict between Israel and Hamas in Gaza, a dispute between Russia and Ukraine that has shut off or disrupted natural gas supplies to more than a dozen European nations, and diminished crude exports from the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply.

"We have these other factors that will support oil," Shum said. "Most likely, we won't see a big downward spiral despite the poor earnings reports."

Prices of futures contracts for later this year suggest investors expect oil to recover. The March contract trades near $46 a barrel while the April contract trades above $49.

"The expectation is that pricing will regain strength, and it's not a question of if but when," Shum said.

In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market.

It's a complicated question, reported 60 Minutes correspondent Steve Kroft, and there are lots of theories. But many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia. See Kroft's report: