Oil drifts below $35 amid waning demand Slowing global economy and waning fuel demand pushes prices down on final day of January contract.
December 19, 2008: 11:06 AM ET
NEW YORK (CNNMoney.com) -- Oil prices fell in morning trading Friday, on the final day of the January contract, as the global economic slowdown continues to damper demand for oil.
U.S. crude for January delivery slipped $1.46 to $34.76 a barrel. Earlier in the session, prices dipped as low as $33.44 a barrel.
The February contract, which begins its front-month run on Monday, rose 58 cents to $42.25 a barrel.
On Thursday, oil fell to a 4-1/2 year low, shedding $3.84 to $36.22 a barrel.
Trading was muted as investors continued to shrug off an OPEC production cut, which will take effect in January.
On Wednesday, the Organization of Petroleum Exporting Countries, an international trade organization whose members supply about 40% of the world's oil, elected to cut production by 2.2 million barrels a day, starting next month.
OPEC's action, and investor concern about the slowing global economy's impact on crude demand, sent the price down $3.54 to $40.06 a barrel on that day, marking its lowest close since July 2004.
"They're wondering whether OPEC can enforce this cut," because the budgets of many OPEC nations are already stretched incredibly thin, said Nimit Khamar, analyst with Sucden Financial in London.
Investors have largely ignored other OPEC production cuts made since September, totaling an additional 2 million barrels a day.
There was also little reaction to the U.S. government's announcement of a rescue plan for General Motors (GM, Fortune 500) and Chrysler LLC that makes $13.4 billion in federal loans available almost immediately.
Falling demand: Oil prices have shed more than $100 a barrel since hitting a record high of $147.27 a barrel in July as worldwide demand began to decline.
In the United States, the world's largest oil consumer, supplies have been building as Americans cut back on driving.
U.S. crude inventories increased by 500,000 barrels last week, according to the Energy Department.
"We've got more oil than we know what to do with at the moment," said Bob Thomas, head of the energy group at Porter & Hedges, a Houston-based law firm that represents oil companies.
Consumer in the U.S. drove 100 billion fewer miles over the past year, according to a government report.
"We're seeing demand slip everywhere, including China," said Khamar.
Rapidly expanding export-based economies of nations such as China and India are beginning to suffer as much as their counterparts in the developed world, where cash-strapped citizens are consuming less of everything.
"It may take a while for supply and demand to match up," said Thomas.
Looking forward, the Energy Department said Wednesday that crude prices could reach $130 a barrel in 2030 as global supplies diminish. But it also predicted that demand for fuel would rise by only 1 million barrels a day during that time period.
