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2008-11-21

Oil plunged below US$50 a barrel on 20 Nov 2008

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Oil plunged below US$50 a barrel on Nov 20, deepening losses over the previous four sessions as battered financial markets reflected ever lower confidence in the world economy and evidence mounted of falling fuel demand.

US crude fell US$3.71, to US$49.91 a barrel by 1402 GMT, the weakest level since January 2007.

London Brent crude shed US$3.10 to US$48.62 a barrel.

As economic slowdown has destroyed fuel demand, oil companies plan to store millions of barrels of oil in the hope economics will improve.

Shipping brokers said on Nov 20, US oil trader Koch and Royal Dutch Shell had booked supertankers capable of storing 10 million barrels of crude, more than top exporter Saudi Arabia produces in a day.

Oil has lost about two-thirds of its value since July's record above US$147, in part because a global credit crunch has made investors pull their money out of riskier assets.

The falls on oil have mirrored weakness on equity markets, which dropped again on Nov 20 when European stocks hit their lowest level since March 2003.

"Weakness in stocks reflects weakness in the economy at the moment looking forward, but I think the general trend in oil is lower anyway," said Sucden's head of research Michael Davies.

"It's a bit of a chicken or egg thing. Everything's moving together, it's hard to say what's leading."

Oil differs from other commodity markets in that producer group the Organisation of the Petroleum Exporting Countries (Opec) can intervene to curb supplies, in theory providing support for prices.

Since early September, Opec has said it will remove around twomillion barrels per day from international markets, but the market has taken the view falling demand is a bigger factor than tightening supply.

Deutsche Bank said on Wednesday oil could fall to as low as US$40 a barrel next year.

Fears about their falling revenues have prompted some members of Opec to urge further cuts as soon as possible and ministers are to gather for informal talks on Nov 29 in Cairo.

They will also meet again for a formal session on Dec 17 in Algeria.

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