Oil falls to USD 63 as investors eye falling demand

Oil prices fell to 17-month lows at USD 63 a barrel on Monday in Asia as investors weighed Friday's OPEC output cut against growing evidence of a severe global economic slowdown that would undermine crude demand.


Light, sweet crude for December delivery fell 32 cents to USD 63.83 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.



Investors brushed off a 1.5 million barrel-a-day cut announced by the Organisation of Petroleum Exporting Countries on Friday, focusing instead on falling crude demand as economies across the globe reel from the impact of a credit crisis.



On Friday, oil fell USD 3.69 to settle at USD 64.15. Prices have plunged 57 per cent from a record USD 147.27 on 11th July.



"The mood is fairly negative reflecting worry about the international economic outlook," said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney.



"If there is further weak economic data in the US or Europe, prices could come under more downward pressure."



Iran's OPEC governor Mohammad Ali Khatibi said on Sunday a reduction in production "will be considered" at the group's next meeting in Algiers in December - a meeting that might even be held early if necessary.



"I thought the OPEC cut was a fairly decisive act, but concerns of recession in the major economies remain dominant," Moore said. "OPEC's cut does take a step toward tightening the market."



Investors have been paying close attention to signs that a slowing economy and higher gasoline prices earlier this year have hurt crude demand in the US, the world's largest oil consumer.



The US Department of Transportation said Friday that Americans drove 5.6 per cent less, or 15 billion fewer miles (24 billion fewer kilometers), in August compared with same month a year ago - the biggest single monthly decline since the data was first collected regularly in 1942.



Oil investors have also been eyeing stock markets to gauge sentiment on global economic health.



Most Asian stock indexes fell on Monday, led by Hong Kong, South Korea and Australia. Japanese shares rebounded slightly after plummeting last week.



The Dow Jones industrial average fell 3.6 per cent Friday.



"If we're looking a severe economic downturn, it's hard to say what the bottom of any commodity price will be," Moore said.



In other Nymex trading, heating oil futures rose 0.13 cent to USD 1.95 a gallon, while natural gas for November delivery fell 19.8 cents to USD 6.04 per 1,000 cubic feet.



In London, November Brent crude was down 60 cents to USD 61.45 a barrel on the ICE Futures exchange.

Asia stocks crash, Nikkei hits 26 yr low

Japan's Nikkei slumped nearly 500 points on Monday to its lowest close in 26 years as the yen advanced on the dollar, battering exporters such as Toyota amid a slide in Asian shares.


The benchmark Nikkei 6.4per cent to 7,163, its lowest close since October 1982.



The yen rose against the dollar and was approaching a 13-year high as the risk of a global recession and an extended slump in the world's stock markets prompted investors to slash carry trades.



The Bank of Korea slashed interest rates by the most ever in an attempt to restore confidence after stocks lost a fifth of their value and the won fell to a decade low last week.



Elsewhere in Asia, stocks continue to trade deep in red.



Meanwhile world oil prices weakened in Asian trade today with OPEC's decision to cut supply at a time of global financial turmoil seen as hurting already weak energy demand further, dealers said.

Sensex down 191 points in pre-close trade

After dipping below 8,000-points level, the benchmark Sensex recovered most of its early losses, to quote 191 points down in pre-close trading on the back of buying by domestic financial institutions and short-covering by speculators.


The 30-share index, which had lost over 1,000 points at midsession on major sell-off by jittery funds, recovered partially to trade 191.89 points down at 8,509.18 points after touching the day's low of 7,697.39, a level last seen on October 2005.

The wide-based National Stock Exchange index Nifty was down by 79.80 points at 2,504.20 points after dropping to 2,252.75 points at one stage.

Marketmen said emergence of buying by domestic financial institutions and covering-up of short positions by speculators at prevailing lower levels helped Sensex to recover part of lost ground.

Porsche raises Volkswagen stake

Porsche has increased its stake in Volkswagen, saying it hopes to have a majority holding in Europe's biggest carmaker by the end of the year.

Porsche revealed its stake had risen to 42.6% - saying it had chosen to make the announcement because of uncertainty in the car market.

It had previously already been been the largest shareholder, holding about 35%.

Porsche has said it did not want to merge with VW - but create an alliance that could take on competition.

It has also argued that it needs a strong influence at VW, which makes components for a third of Porsche cars.

The car industry, which is often seen as a barometer of the world economy, is entering a deep recession, with sales and profits tumbling.

Manufacturing plants are closing, production is being cut back, jobs are being axed and car company share prices are tumbling as a consequence.

United plans

Last week Porsche said disagreements between family members in the company had been resolved.

Two cousins, Wolfgang Porsche and Ferdinand Piech, have held conflicting opinions on how to take over VW.

Mr Piech - who is both the Porsche boss and head of the VW supervisory board - has backed unions who object to the takeover of their company.

But Mr Porsche said that the families were "united" on plans including the idea of co-management of both companies.

The so-called "VW Law" - which essentially gives German authorities the right to veto strategic decisions Volkswagen - will also be scrapped.

Global shares continue to slide

European markets have fallen sharply in morning trade, touching five-year lows, as investors continue to fret about the depth of the global economic slowdown.

The UK's FTSE 100 fell 5.6% to 3,665 at one point, its lowest level since April 2003, before recovering slightly to 3,693, down 4.9% from Friday's close.

Its decline came after Japan's Nikkei index earlier ended at a 26-year low.

The pound also continued its recent falls, dropping against the dollar to $1.5341 in early trading.

The euro was also lower, sliding to $1.2377, around levels last seen in April 2006.

Earlier on Monday the Group of Seven (G7) industrialised nations issued a statement warning that the strength of the yen was a threat to economic stability, which was taken as a threat of co-ordinated action to reduce the value of the currency.

While the yen briefly weakened, it soon climbed back towards Friday's 13-year high against the dollar.

The yen has been strengthening as a result of the end of the carry trade, in which traders borrowed the Japanese currency and used it to buy currencies with higher interest rates.

As the difference between Japanese rates and those elsewhere in the world has fallen, traders have been unwinding the carry trade, which means they have been using other currencies to buy yen, which has boosted the Japanese currency.

In other currency news, the Australian government intervened for a second time to support its currency, which was trading at a 5-year low against the US dollar. One US dollar was worth 0.6122 Australian dollars.

The Australian central bank last intervened more than a year ago and before that had not done so since 2001

Sensex opens lower; Suzlon, Unitech surge

MUMBAI: Equities extended overnight losses to open with a gap down Friday. Bombay Stock Exchange’s Sensex was at 8588.86, down 112.21 points and National Stock Exchange’s Nifty was down 34.25 points at 2549.75.

Banking major State Bank of India, on standalone basis, has posted a net profit of Rs 2259.72 crore for the quarter ended Sep 30, 2008 against Rs 1611.42 crore in the same quarter of 2007. Interest earned stood at Rs 15566.50 crore against Rs 11616.28 crore previous year. Interest expended was Rs 10111.15 crore against Rs 7853.36 crore same quarter last year. The scrip was down 2.73 per cent at Rs 1133.

Beaten down scrips Suzlon and Unitech were up over 12.53 per cent 28.39 per cent respectively.

Asian markets continued to remain under pressure. Hang Seng fell 4.53 per cent, Shanghai Composite was down 2.73 per cent, Taiwan Weighted plunged 5.52 per cent and Nikkei average was 0.40 per cent higher.
US markets ended with heavy losses Friday. Dow Jones ended 3.59 per cent lower, Nasdaq closed 3.23 per cent down and S&P 500 closed 3.45 per cent down.

Mutual funds may see some redemptions pressure and jittery traders are expected to off-load their positions to minimise losses after the carnage in Indian bourses Friday.

Equities all over the world including India witnessed one of the worst trading session as cash-strapped foreign investors hammered the market.

Russia in steps to boost rouble

Russia has spent more of its reserves in the past week to boost its currency, recent central bank figures show.

Gold and foreign exchange reserves have fallen by $15bn (£9.3bn) to $515.7bn in seven days.

Separately, the country's State Duma has amended its budget to boost funds for the financial sector.

And foreign investors have been withdrawing money from Russia following its intervention in Georgia, adding to fears over the economy's stability.

As the price of oil has weakened, the value of Russia's reserves have fallen recently.

"A sliding oil price will uncertainly test the government's resolve and willingness to use ever large amounts of the country's monetary reserves to defend the rouble," said Chris Weafer, an analyst with Uralsib.

The amount of Russia's reserves is viewed as key for rating agencies to assess the quality of Russia's debt rating. Lower reserve levels make the cost of insuring sovereign Russian debt against default more expensive.

'World practices'

Meanwhile, the government has been taking steps to calm recent market jitters.

The lower house of parliament has passed changes to the budget allocating 175bn roubles (£4bn) to help financial firms, Itar-Tass news agency reported.

The Deposits Insurance Agency will get a further 200bn roubles, while depositors will gain more protection.

Global shares have fluctuated sharply in recent days amid continued uncertainty over the state of the world economy and fears of a widespread recession.

Russia has closed its main stock market on a number of occasions in response to high volatility.

Vladislav Reznik, the chairman of the State Duma's financial market committee, said the current financial turmoil justified special interference by the state.

"Such an approach matches world practices. It was tested in Russia after the financial crisis of 1998," he said.

Bush to host world finance summit

President George W Bush will host the world's first global financial summit in the US on 15 November, a White House official has said.

The meeting - the first in a series - will discuss the financial crisis and ways to prevent it recurring.

Leaders from the G20 group of nations - the world's leading industrialised countries and major developing nations - will attend.

The winner of the US presidential election will also attend the summit.

The meeting, to be held in the Washington DC area, will consider the reforms needed to avoid another financial crisis and look at the progress being made so far.

"The leaders will review progress being made to address the current financial crisis," said White House spokeswoman Dana Perino.

In order to avoid a repetition of the crisis, she said they would "agree on a common set of principles for reform of the regulatory and institutional regimes for the world's financial sectors".

Worldwide crisis

Later summits will focus on working out the details of the reforms needed.

Some European leaders had pushed for a summit before the end of the year, and French President Nicolas Sarkozy had said it should take place in New York.

Among those expected to attend the summit will be leaders from the G20 group of nations, which includes the G7 group of major industrial economies, as well as key emerging-market countries such as China, India and Brazil.

The head of the International Monetary Fund, the president of the World Bank, the United Nations secretary general and the chairman of the Financial Stability Forum have also been invited to participate

Pound tumbles to a five-year low

The pound has tumbled almost 3% against the US dollar - falling to its lowest level in five years on recession fears.

Sterling's fall came after the Bank of England governor, Mervyn King, warned that Britain was probably entering its first recession in 16 years.

The pound dropped as low as $1.620 overnight, its lowest since September 2003. It later recovered to $1.6398.

The euro fell as low as $1.2736 against the dollar before rising to $1.2895 later in the day.

The dollar has also been rising against other currencies. It has jumped to a two-year high against a basket of currencies as investors have bet that interest rates outside the US will be cut sharply to try to bolster global growth.

In the UK both Prime Minister Gordon Brown and Bank of England governor, Mervyn King, have warned of the danger of recession, boosting expectations of lower interest rates.

Referring to the pound and the dollar, Simon Derrick, head of currency research at the Bank of New York Mellon, said: "I think it is a combination of both strength in the dollar and weakness in sterling.

"I certainly believe this was a very direct reaction to Mr King's comments overnight.

"The recession talk is clearly undermining investors in the equity markets and therefore people are bringing their money home."

Meanwhile, concerns there may be a deep slowdown in the world economy have prompted investors to cash in more of their bets against the US dollar which had built up in recent years.

"Investors continue to flock to the dollar as speculation mounts that central banks elsewhere will continue with aggressive rate cuts in an attempt to stimulate growth in the near term," said James Hughes, an analyst at CMC Markets in London.

"The pound has to be the stand-out, with losses here being compounded by unprecedented comments from Mervyn King last night, essentially confirming the fact that the British economy is now in a recession and any recovery will be far from swift," he added

UK borrowing hits a 60-year high

The UK government borrowed a record amount last month, Office for National Statistics (ONS) data shows.

Public sector net borrowing hit £8.092bn in September, up from £4.775bn in the same period a year earlier, marking a record for the month.

The amount borrowed so far this financial year stands at £37.6bn - the highest since records began in 1946.

The government has said it will keep investing money into public works to prevent a recession

Record borrowing

Prime Minister Gordon Brown insisted Britain's economy remained in a strong position to weather the downturn.

The United Kingdom cannot insulate itself from this global downturn," he said.

"But with interest rates low and falling, inflation expected to come down over the next year, these underlying economic indicators - particularly interest rates - make us stronger than at any other previous downturn, " he added.

Conservative leader David Cameron said the government had to take responsibility for the country's economic woes.

"The government keeps saying - and the Prime Minister I think said it at least three times in his statement - this is a crisis from America, as if no-one in Britain has any responsibility for anything that went wrong," said Mr Cameron.

Liberal Democrat leader Nick Clegg said the government should over tax cuts for people on low and middle incomes.

Slowdown

On a net cash requirement basis the government borrowed £12.65bn last month, compared with a deficit of £8.72bn in the same period a year ago.

This was also more than expected; analysts had forecast that public borrowing would reach around £10.1bn in September.

The cumulative borrowing for the period from April to September of £37.59bn is up from the £21.46bn borrowed in the same period a year earlier, and represents the largest total for a six month period since records began in 1946.

The figures come a day after Ernst & Young Item's Club said the UK economy was already in a recession and would see the economy shrink by 1% next year, before growing by 1% in 2010.

In response to the latest figures the Item Club said: "The UK's public finances are in a complete state and in much worse shape than a year ago".

Figures later this week are expected to show that the UK economy shrank in the third quarter - the first contraction since 1992.


Chancellor Alistair Darling had forecast in his Budget statement in March that public sector public borrowing for the full financial year - up to April 2009 - would reach £43bn.

But the Item Club believes borrowing will reach £60bn in the financial year 2008-09, with a current budget deficit of £27 billion, "much higher than the government's own projection".

In light of this, the club said it was clear "substantial revisions will be necessary in the Pre-Budget Report".

Unemployment is already rising and forecast to continue doing so, which will will add further pressure on the government's finances.

And recent data has underlined the weakness in the housing sector; mortgage lending fell to its lowest level for more than three and a half years in September, according to the Council of Mortgage Lenders.

The UK and other governments recently took emergency steps to shore up the banking system in a bid to increase liquidity and stabilise the markets.

Oil prices fall to 16-month lows

Oil prices have fallen to 16-month lows on growing signs that a global economic slowdown is reducing demand.

The declines came as official US data showed that US crude stocks rose by 3.2 million barrels in the week to 17 October, higher than expectations.

Highlighting a fall in sales of petrol and other refined fuels, US light crude fell as low as $66.73 a barrel, its lowest point since June 2007.

Oil producers group Opec is due to cut output on Friday to help lift prices.

US light crude finished the day's trading down $5.43 to $66.75.

Brent crude fell $5.20 to $64.52 a barrel, after earlier touching $64.59, also a 16-month low.

Steadily fallen

Despite Opec's expected reduction in production, oil analysts said crude prices could fall as low at $60 as signs that the world is heading for recession continue to grow.

Opec's meeting as been brought forward by three weeks, reflecting the 12-nation group's concern at falling prices.

Oil hit an all-time high of $147 a barrel back in July, but has since fallen back steadily.

Opec members include Saudi Arabia, Iran, Iraq and Venezuela.