* January contract on final day hits lowest since July 2004
* Eyes on 4.7 million barrels rise in Cushing oil stocks
* OPEC cuts fail to stem bloodletting
(Updates price, adds comment)
By Chris Baldwin
LONDON, Dec 18 (Reuters) - U.S. crude dropped to around $38
a barrel on Thursday, for the soon-to-expire January futures
contract, after OPEC's record output cut failed to stem the
price decline and U.S. inventories of oil swelled.
Oil is about $109 off its July peak, shedding value as a
global recession cuts into fuel demand.
The January contract touched $37.71 on Thursday, its lowest
price since July 2004, and was trading down $2.07 cents at
$37.99 a barrel by 1455 GMT.
February futures <CLG9>, which come to the fore after
January's expiry on Friday, were around $5 higher than the
current front month but also fell $1.46 to $43.15.
"There is an unusually large contango spread, nearly $5, and
the January contract expires in a few hours," said Kevin
Norrish, analyst at Barclay's Capital in London.
"So what's the real price?...the February price is a much
better bet."
The Organization of Petroleum Exporting Countries on
Wednesday made its third output cut since September to try to
regain control of falling prices amid slackening demand.
U.S. crude for January delivery tumbled nearly 8 percent on
Wednesday as traders dismissed OPEC's 2.2 million barrel per day
(bpd) output cut, decided in Algeria. []
U.S. stockpiles of crude oil rose last week slightly more
that expected, with deliveries at the Cushing, Oklahoma delivery
point for physical barrels of light sweet crude showing a build
of 4.7 million barrels. [] This increase,
announced on Wednesday, continued to influence trading on
Thursday.
CHINESE GASOLINE
China on Thursday said it will cut domestic fuel prices on
Friday for the first time in almost two years to revamp its
regulated pricing regime and revive growth. []
The China cuts of roughly 13 percent for gasoline and 17
percent for diesel were brought forward from an expected January
implementation by the National Development and Reform
Commission. Analysts say cheaper fuel in China could stimulate
demand.
Some forecasters now predict the first decline in world
energy use since 1983.
"Following OPEC's announcement to cut so aggressively,
market participants are reading the degree of this move as being
indicative of just how weak demand is globally for crude oil,"
said Chris Jarvis, a senior analyst at Caprock Risk Management.
"A retest of levels with February contract becoming the
front month shortly is to be expected and also a catalyst for
this...weakness," Jarvis said.
For OPEC's curbs to be effective the fractious group will
need to enforce compliance, historically a tricky task in a
falling market. The producer group itself estimates November
production cut compliance by its members at around 50 percent.
Next year's outlook is increasingly bleak as economic
indicators show a deep global recession taking hold, causing oil
demand to fall from the United States to China.
JPMorgan cut its 2009 average crude oil price forecast to $43
a barrel from $69 following OPEC's cut, and analysts say more
losses are in store until a sufficient supply is taken off the
market or demand levels swing back up. []
(Reporting by Chris Baldwin, additional reporting by Annika
Breidthardt in Singapore, editing by Anthony Barker)
