Railroaders place to shoot the shit.

Oil Below $38 Per Barrel On Weak Economic Reports

NEW YORK (AP) Prices have fallen 73 percent since July, with massive job layoffs and weak consumer spending eating away at energy use. CBS 1 of 1Oil prices tumbled below $38 a barrel Tuesday on fresh evidence of weakness in the U.S. housing market and a shrinking gross domestic product that suggests the recession may be worsening.

A report by the Commerce Department showed that sales of new homes fell in November to the slowest pace in nearly 18 years, while new home prices dropped by the biggest amount in eight months.

"The energy markets are reacting first and foremost to bad economic news, and it seems like they're almost waiting for something bad to occur," said oil analyst Peter Beutel of Cameron Hanover.

A steady outpouring of gloomy economic news has pushed to the background events that over the summer may have led to price spikes, like OPEC's announcement this month of unprecedented production cuts, Beutel said.

Prices have fallen 73 percent since July, with massive job layoffs and weak consumer spending eating away at energy use.

"Boy, it really looks ugly for the start of 2009," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

"It's really difficult to find something between now and inauguration time that says people are going to feel better, they're going to drive more, they're going to ship more packages," Kloza said.

Light sweet crude for February delivery fell nearly 5 percent, or $1.89, to $38.02 on the New York Mercantile Exchange. Prices fell as low as $37.79 earlier in the day.

Overnight, the February contract fell $2.45 to settle at $39.91 a barrel after Toyota Motor Corp. projected its first-ever operating loss since it began reporting such numbers in 1941.

Economists now believe a small decline in economic activity in the third quarter has worsened significantly.

The Commerce Department said Tuesday that the gross domestic product, the broadest measure of economic health, declined at an annual rate of 0.5 percent in the July-September quarter. Corporate profits fell 1.2 percent.

Some economists believe the economy's decline in the October-December period could be as large as 6 percent. If so, that would be the worst quarterly drop since 1982.

The pain appears to have spread through almost every level of the economy. On Tuesday, shares of card maker American Greetings Corp. shares sank to their lowest level in 21 years after the company reported that it swung to a loss in its third quarter.

On Monday, Ogden, Utah-based oil company Flying J Inc. and two of its subsidiaries filed for Chapter 11 bankruptcy protection, citing a steep drop in oil prices and the lack of available financing due to the disruption in credit markets.

Flying J operates 250 travel plazas and fuel stations in 41 states and six Canadian provinces.

"They won't be the last marketer or refiner that may have to go the bankruptcy route in the next year or so," Kloza said. "It's been pretty rugged out there."

Toby Hassall, an analyst at investment firm Commodity Warrants Australia in Sydney, predicted crude prices could fall as low as $25 a barrel next year before any recovery occurs.

OPEC said last week it would slash production by 2.2 million barrels a day, its largest cutback ever, reducing the amount of oil produced each day by 4 million barrels in all when earlier cuts are included.

"It will take time for output cuts to flow through, but there's some doubt about whether there will be full compliance," Hassall said. "I wouldn't be surprised if OPEC cut again in January or February. There's been quite a significant demand side deterioration."

Meanwhile, Iraq's Oil Ministry announced it will open its second licensing round for developing its vast oil and gas fields. Iraq sits on more than 115 billion barrels of oil, but decades of war, U.N. sanctions, violence and sabotage have battered its oil industry.

The Iraqis are betting that oil will eventually rebound. But even if it stays low, it doesn't matter, Beutel said.

"They need the money," he said. "They can't get anywhere near the same amount of money by selling dates."

Oil's downward curve has brought down gasoline prices, providing consumers with one of the few bright spots in a deteriorating economy.

Retail gasoline prices have now fallen for the 23rd week since the July 4 weakened, reaching a national average of $1.653 a gallon as of Monday, according to the U.S. Energy Information Administration.

"That is the lowest price at the pump in nearly five years, i.e. since February 2004," trader and analyst Stephen Schork wrote in his Schork Report.

Gasoline futures on the Nymex tumbled 5.3 cents to 83.3 cents a gallon. Heating oil fell 2.7 cents to $1.3141 a gallon while natural gas for January delivery rose nearly 17 cents to $5.462 per 1,000 cubic feet.

In London, February Brent crude tumbled more than 4 percent, or $1.73, to $39.72 a barrel on the ICE Futures exchange.

(© 2008 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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