US oil prices slid towards $34 a barrel this morning, extending losses of nearly 7 per cent a day earlier on fresh concerns over the economy and sliding oil demand, which has caused inventories to bloat.
Global markets were roiled by fear that Eastern Europe's battered economies would drag down Western banks, while oil traders braced for an eighth consecutive rise in weekly US crude oil stock data.
US crude for March delivery, which expires on Friday, fell 44 cents, or 1.3 per cent, to $34.49 a barrel at 6.38am, while London Brent crude for April delivery fell 53 cents to $40.50 a barrel.
With the expiry of the March contract just days away, the April contract has fallen even faster than the front month, narrowing the gap to around $3.60 today versus nearly $8 last week, suggesting traders believe the swollen stocks in Cushing, Oklahoma, may persist.
"The pessimistic macro tone that has been evident in equity markets has been reflected in the energies complex," said Toby Hassall, chief analyst at Commodity Warrants Australia.
US stocks slid within striking distance of the November bear-market low yesterday, with financial shares sinking to 14-year lows after Moody's Investors Service said banks could be hit by the recession in Eastern Europe.
In Asia today, Japan's Nikkei stock average fell 1.5 per cent to its lowest close in nearly four months.
The financial crisis has left much of the world in recession and hammered oil consumption, pulling crude prices from record highs above $147 a barrel hit in July.
"An imminent recovery in crude oil prices appears unlikely as weak global demand remains a weight on the market," Hassall said.
But Goldman Sachs said in a note that commodities markets were beginning to show signs of bottoming, even though it advised against direct investment in the asset class due to hefty costs involved in holding positions.
"Unlike an equity, which an investor can buy and hold, a long investment in a commodity cannot be held indefinitely," it said. The bank remains bullish on the long-term outlook for commodities.
Reuters