World oil prices hit multi-month lows today, hit by global economic fears, but rebounded in afternoon deals as investors eyed recovering stock markets ahead of a US interest rate decision.
In early deals, New York's main contract, West Texas Intermediate light, sweet crude for delivery in September, had plunged to $75.71 a barrel - the lowest level since September 29, 2010. Brent North Sea crude for September had dived as low as $98.74 a barrel, hitting a level last seen on February 8.
However, in late afternoon London deals, Brent oil stood at $104.62 a barrel, up 88 cents from yesterday's closing level. New York crude wiped out its losses to trade at $82.08, up 78 cents.
Prices had plunged on fears of slowing energy demand in China and the US, and as the OPEC cartel slashed its global consumption forecasts. The energy market has been badly hit in recent days by the euro zone debt crisis, Washington's loss of its AAA credit rating and faltering global growth.
Standard & Poor's announced last Friday that it was cutting Washington's long-term sovereign debt rating from AAA to AA+. China said today that the nation's inflation rate hit 6.5% in July, the highest level for more than three years.
The news has sparked intense concern about monetary tightening and fresh instability in the Chinese economy at a time of renewed global financial turmoil.
Crude futures had already tumbled yesterday as the unprecedented downgrade of the US's credit rating shook financial markets and sparked fears of slowing global energy demand.
OPEC cuts oil demand forecast
The OPEC group of petroleum exporting countries slightly lowered its forecast today for 2011 and 2012 crude oil demand, citing concerns for the economic health of developed countries.
In its monthly report, the cartel said demand for crude was expected to reach 88.14 million barrels a day in 2011, down from a previous estimate of 88.18 million. The new figure represented a rise in demand of 1.2 million barrels a day from 2010, it said, as world oil prices hit multi-month lows.
For 2012, OPEC said it now forecasts a demand of 89.44 million barrels a day, down from a previous prediction of 89.5 million.
'Economic worries along with high oil prices have affected OECD oil demand, leading to weaker than expected consumption during the summer driving season,' the group said. Its members provide about 35% of the world's crude oil and has more than three quarters of its reserves.
'Oil demand in the OECD is expected to continue its contraction after a temporary rebound last year,' OPEC said. The Organisation for Economic Cooperation and Development groups 34 of the world's most advanced economies.
OPEC cited the situation in the US, which saw its 'AAA' credit rating downgraded on Friday by Standard & Poor, as a particular concern. 'Should the situation see further deterioration in the US, then aggregate oil demand will see a further decline this year,' said OPEC of the world's biggest oil consumer.
The Federal Reserve in June predicted slower growth in the US economy than previously expected for 2011 at between 2.7% and 2.9% - down from an earlier forecast of between 3.1% and 3.3%.
But OPEC said the impact from the S&P downgrade should be 'low' in the short-term. In the euro zone, the risk of the debt crisis swallowing Italy and Spain are counterbalanced by a rise in orders in the manufacturing industry, which should sustain the demand for oil, it added.
On the production side, OPEC said it had produced an extra 0.4 million barrels of oil a day last month. Production reached 30.07 million barrels, 0.7 million more than the level before the outbreak of the Libyan conflict. Five months into hostilities, the country is yielding only about 50,000 million barrels of oil a day, down from 1.6 million previously.
OPEC member states decided at a meeting in Vienna in June to leave the official output target at 24.84 million barrels a day, where it has stood since January 2009. Not counting Iraq, the only member country without a production quota due to unrest, OPEC is currently producing 27.39 million barrels a day.
