Oil gives up overnight gains as economic anxiety cuts demand expectations

NEW YORK - Lingering worries over the global economy pushed oil prices lower Monday, as traders ignored advancing stock markets and focused on fears of slipping demand.

Light sweet crude for December delivery traded as high as US$69.19 a barrel before falling back as low as $66.54, trading later in the morning at $67.46, off 35 cents from Friday's settle on the New York Mercantile Exchange.

The contract had gained $1.85 Friday in a late-session surge on the back of a Wall Street rally.

Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore noted the initial overnight rise in Asia was "in sync with Asian equity markets, which are firmer as investor confidence rises."

Oil investors have been tracking equity indexes as a barometer of global economic health. Hong Kong's Hang Seng index was up 2.7 per cent, while South Korea's Kospi was up 1.4 per cent. Japanese markets were closed for a holiday.

Shum said the U.S. presidential election Tuesday will resolve some uncertainties about future government policies, likely giving a further boost to equity markets and oil futures, especially if there's a convincing win by either Democrat Barack Obama or Republican John McCain.

But persistent concerns that the weak global economy will weigh on oil demand well into 2009 are expected to keep a lid on prices.

"Oil markets remain gloomy, pressured by fears of strong demand destruction as a result of the global financial crisis," noted Vienna's JBC Energy.

The U.S. Commerce Department last week said the economy shrank 0.3 per cent in the July-September quarter, the worst showing for the world's largest economy in seven years.

Shum foresees continued "downward volatility in oil futures."

"I expect oil to trade within the $60-$70 range in the near term," Shum said.

Oil prices have fallen by more than half since peaking above US$147 a barrel in mid-July. In October, crude recorded its biggest-ever monthly drop as prices tumbled 32 per cent.

That drop came despite moves by the Organization of the Petroleum Exporting Countries to cut 1.5 million barrels of production a day.

Venezuela's Oil Minister Rafael Ramirez has said OPEC, which controls about 40 per cent of world crude oil production, will need to cut production by at least another 1 million barrels daily to boost falling prices.

Opinion, however, is mixed on whether all members of the cartel will respect the quota reductions.