Oil slips below $39
Oil slipped below $39 a barrel on Monday as the U.S. stock market retreated and investors worried about the weak economy.
Crude fell $1.59 to end the day at $38.44, and reached as low as $37.87 during the session. It closed at $40.03 on Friday.
"Overall, the weakness in the economy is still what’s dictating direction for oil prices," said Phil Flynn, an analyst at Alaron Trading in Chicago.
Oil had risen in early trade on Monday after published reports said that the U.S. government could end up owning as much as 40% of Citigroup.
A source familiar with the situation told Reuters talks were ongoing between Citigroup and regulators. Equities traders had expected a full-scale nationalization so reports of only a partial takeover helped boost shares in Asia and Europe.
But the U.S. stock market turned negative later and dealers said the Citigroup story refocused attention on the U.S. banking crisis and the deepening slump in the wider economy.
"The banking crisis is still at the core of the broad recession," said Mike Wittner, analyst at Societe Generale.
More evidence emerged on Monday that the Organization of the Petroleum Exporting Countries is strictly enforcing output cuts.
89% compliance
As the financial crisis has thrown major economies into recession, global energy consumption has shrunk, prompting oil prices to fall by more than $100 since last July’s peak of nearly $150.
In response, OPEC has already agreed on cuts totaling 4 low interest rate personal loans.2 million barrels per day (bpd) since last September and evidence has mounted of a high level of compliance with the lower production targets.
In February, OPEC oil supply is expected to have dropped sharply, Petrologistics told Reuters on Monday.
OPEC’s 11 members with output targets were expected to pump 25.32 million bpd in February, down 980,000 bpd from January levels and giving a compliance rate of 89%, according to Reuters calculations, which would be one of the highest rates yet.
"It’s provisional because we’re still in February," said Wittner. "But that’s mighty constructive."
The producer group is also very likely to decide on a new production cut at its next meeting scheduled in March, Algerian Energy and Mines Minister Chakib Khelil said at the weekend.
Financial markets will be keeping an eye on Federal Reserve Chairman Ben Bernanke’s policy report to the U.S. Congress on Tuesday and Wednesday. He is expected to offer assurances that help is on the way for the U.S. economy and may offer clues on additional steps that could halt the economy’s downward spiral.
President Barack Obama is also expected to talk about the economy before a joint session of Congress Tuesday.
Gold, a safe-haven investment, eased on Monday, after topping $1,000 an ounce last week.