Crude ends below $55 a barrel Monday as the world's second-largest economy enters a recession, deepening fears that demand for oil will continue to sink.
By Catherine Clifford, CNNMoney.com staff writer Last Updated: November 17, 2008: 3:01 PM ET
NEW YORK (CNNMoney.com) -- Oil fell on Monday and ended at a 21-month low as fears over the global economic slowdown accelerated on news that Japan officially fell into a recession.
Light, sweet crude for December delivery settled down $2.09 cents to $54.95 a barrel on the New York Mercantile Exchange. The last time oil closed at such a low level was Jan. 29, 2007, when crude oil ended the day at $54.01 a barrel.
Oil prices continue to be pressured by further signs of just how deep the global economic slowdown is spreading, said James Cordier, portfolio manager of OptionSellers.com. "It is really hard to see how this slowdown will be shallow and brief."
Crude futures hit an all-time high of $147.27 a barrel on July 11, but have since fallen more than 60% off that record as global economies have fallen into recession. On Friday, oil fell $1.20 to settle at $57.04 a barrel.
When a nation's economy weakens, demand for oil plummets as consumers and industries cut back on spending.
"We simply don't have more dollars chasing few barrels right now," said Cordier. "We have just the opposite."
As the price of oil has fallen off so steeply in recent months, Cordier said that refineries do not have incentive to purchase barrels of oil and store it for future use. Instead, "the oil floating on the Gulf of Mexico is looking for a home," said Cordier.
Japan enters a recession: Monday, government officials of Japan - the world's second-largest economy -announced that the nation is in a recession. Japan's Cabinet Office reported that that its economy fell another 0.1% in its third quarter, following a 0.3% drop in the second quarter.
The announcement that Japan is in a recession comes on the heels of Friday's announcement that the European Union is in a recession. The European Union officially declared that the 15-nation group had entered into a recession, with its gross domestic product declining 0.2% for the second straight quarter.
The leaders of the G20 - a consortium of the world's twenty developed and emerging economies - met in Washington, D.C. for two days and unveiled a set of plans to work to end the global financial crisis.
OPEC readies for early meeting: With the price of a barrel of crude oil more than 60% off the high prices of the summer, the Organization of Petroleum Exporting Countries is reportedly considering an early meeting to discuss production quotas.
OPEC is currently scheduled to meet Dec. 17 in Algeria, but the group could reportedly meet as early as Nov. 29 in Cairo.
OPEC cut oil output by 1.5 million barrels a day on Oct. 24 in an effort to prevent further declines in oil prices. But so far the market's fear of weak global demand has outweighed the cartel's efforts to control the price by limiting supply.
OPEC leaders may be considering further reductions, but until OPEC successfully implements the cuts already announced at the last meeting, "they don't have a lot of creditability coming up with another cut," said Cordier.
Gas prices $2 off highs: As crude oil prices have fallen off record highs, so have retail gas prices. The cost of gas at the pump fell for the 61st consecutive day Monday to prices not seen in three in a half years.
The national average price for a gallon of regular gas shed 1.8 cents to $2.087 a gallon, according to a daily survey by the American Automobile Association.
The last time the average price for a gallon of regular unleaded gasoline dropped below the current level was on March 31, 2005, when the national price averaged $2.072 a gallon.
Friday's national average is down $2.03, or nearly 50%, from the record high price of $4.114 that AAA reported on July 17.
