Crude gives back 8% as U.S. auto-rescue plan founders
Goldman slashes 2009 forecast to $45 a barrel from $80
By Polya Lesova
Last update: 10:29 a.m. EST Dec. 12, 2008
NEW YORK (MarketWatch) -- Crude-oil futures tumbled 8% Friday in a stark reversal from the previous session, as a compromise proposal to bail out the U.S. auto industry collapsed in the Senate, escalating fears of a deepening recession.
Crude for January delivery fell $3.84, or 8%, to $44.10 a barrel in electronic trading on Globex. Earlier, the contract hit an intraday low of $43.32 a barrel.
Friday's decline reversed nearly all of Thursday's strong gains, when the benchmark oil contract surged more than 10%.
"Risk aversion set in after the auto industry bailout hit a snag when Senate negotiations failed late last night," said Nimit Khamar, an analyst at Sucden Financial, in a note.
Further fueling the bearish sentiment, Goldman Sachs -- which had once predicted $200-a-barrel oil -- slashed its average price forecast for 2009 to $45 a barrel from a prior projection of $80.
Focus on auto industry bailout
Following the collapse of Senate talks on an auto rescue plan, the Bush administration said Friday it will consider its options to save the nation's automobile industry, including tapping the $700 billion in funds under the Troubled Asset Relief Program. See story on White House's plan to use TARP.
"A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," White House spokeswoman Dana Perino said.
A $14 billion bailout deal to aid the struggling Big Three automakers failed in the Senate Thursday night, as a dispute over union wages derailed hopes for a compromise between Republicans and Democrats who had worked feverishly to throw Detroit a lifeline. See full story.
On Wall Street, U.S. stocks posted losses amid worries about the auto industry bailout plan. See more U.S. stocks coverage Market Snapshot.
In Asia overnight
, a week of solid gains ended on a sour note as stocks got punished. See Asia Markets.
The Senate's rejection of extending loans to the Big Three "raised concern of a prolonged recession," said analysts at Action Economics.
"The failure of the rescue package increases the risk of bankruptcies in the automobile industry, which worsens the outlook for the labor market and production in the world's largest oil consumer," they said.
On Thursday, oil futures had rallied fully 10.2% to end at $47.98 a barrel on the New York Mercantile Exchange, propelled along by sharp weakness in the dollar and expectations that the Organization of Petroleum Exporting Countries will deliver a significant production cut next week.
OPEC is widely expected to agree on a cut in member nations' quotas at its meeting Wednesday. In October, the oil cartel announced a production cut of 1.5 million barrels a day but left output levels unchanged at its November meeting.
Goldman Sachs slashed its average price forecast for West Texas Intermediate crude for 2009 to $45 a barrel, down from $80 a barrel previously. This stands in stark contrast to Goldman's prediction earlier this year that oil prices may hit $200 a barrel.
Goldman also lowered its three-month oil price target, to $30 a barrel, as well as its six-month target, to $42, and its 12-month target, to $65.
"The collapse in world oil demand in the fourth quarter of 2008 as the global credit crunch intensified now threatens to push oil prices below $40 a barrel in the near term, as the impact of the global economic recession has swung the oil market from pricing demand destruction in 2008 to pricing supply destruction in 2009," the commodities research team at Goldman Sachs led by Jeffrey Currie said in a report made public Friday.
The Goldman analysts expect oil demand to decline by 1.7 million barrels a day in 2009.
In addition, they said that an additional 2 million barrels a day of OPEC supply cuts will be required in 2009, along with a reduction of 600,000 barrels a day in non-OPEC production, in order to rebalance supply and demand in the oil market.
Also on Globex Friday, January reformulated gasoline fell 9 cents, or 8%, to 99 cents a gallon and January heating oil dropped 9 cents, or 6%, to $1.41 a gallon.
Natural gas for January delivery also fell 13 cents, or 2%, to $5.47 per million British thermal units.
The Reuters/Jefferies CRB Index (CRB
reuters jefferies crb index price
CRB a benchmark that gauges the prices of major commodities, fell 2.7% to 224.59 points. Metal futures also fell. See Metals Stocks.
Polya Lesova is a New York-based reporter for MarketWatch.