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Financial Mirror (Cyprus) - - FRONT PAGE -

Oil dropped be­low $45 a bar­rel in New York on Tues­day, drag­ging com­modi­ties to a 12year low, ac­cord­ing to Bloomberg, with gov­ern­ment bonds ris­ing as the out­look for in­fla­tion dimmed, re­tail­ers led Euro­pean stocks higher and the pound weak­ened against all of its ma­jor peers.

U.S. oil, down 2.5% to $44.90 in early Tues­day trades, has dropped more than 55% since June as the U.S. pumped more shale crude and OPEC re­sisted calls to cut pro­duc­tion, stok­ing a global sup­ply glut. De­clin­ing fuel prices has curbed in­fla­tion ex­pec­ta­tions, cut­ting the chance of an early Fed­eral Re­serve in­ter­est-rate in­crease while boost­ing spec­u­la­tion the Euro­pean Cen­tral Bank will ex­pand stim­u­lus to ward off de­fla­tion.

“Crude is def­i­nitely lead­ing the way down,” said Jeremy Baker, a se­nior com­mod­ity strate­gist at Har­court In­vest­ment Con­sult­ing AG in Zurich. “There doesn’t seem to be any fun­da­men­tal floor to crude oil prices at the mo­ment. Fall­ing prices will def­i­nitely have an eco­nomic ben­e­fit for U.S. con­sumers go­ing for­ward.”

West Texas In­ter­me­di­ate oil ex­tended losses after set­tling at the low­est level since April 2009 on Mon­day, while Brent crude slid 4% to $45.53 in London.

Oil ex­tended its losses amid spec­u­la­tion that U.S. crude stock­piles will in­crease, ex­ac­er­bat­ing a global sup­ply glut that’s driven prices to the low­est in more than 5 1/2 years.

U.S. crude in­ven­to­ries prob­a­bly in­creased by 1.75 mln bar­rels last week to 384.1 mln bar­rels, a Bloomberg News survey showed be­fore gov­ern­ment data on Wed­nes­day. The United Arab Emi­rates said it will stand by its plan to ex­pand out­put ca­pac­ity to 3.5 mln bar­rels a day in 2017 even with “un­sta­ble oil prices,” while shale drillers will prob­a­bly be the first to curb pro­duc­tion as prices fall, ac­cord­ing to En­ergy Min­is­ter Suhail Al Mazrouei.

In the op­po­site di­rec­tion to oil prices, gold rose 0.5% to $1,239.10 an ounce, the high­est price since Oc­to­ber 22, and sil­ver jumped 2.1% to $16.9351.

U.S. nat­u­ral gas in­creased 3.1% to $2.882 per mln Bri­tish ther­mal units (BTU) after fall­ing to a 28-month low in New York. Euro­pean gas rose 1% in London.

The MSCI Emerg­ing Mar­kets In­dex added 0.2% as China’s ex­ports beat es­ti­mates and oil’s de­cline spurred gains in con­sumerdis­cre­tionary shares.

Gold­man Sachs said crude needs to drop to $40 a bar­rel to “re-bal­ance” the mar­ket, while So­ci­ete Gen­erale also re­duced its price forecasts.

“Prices con­tinue to free-fall and there is lit­tle that can stop them,” Am­rita Sen, chief an­a­lyst at con­sul­tants En­ergy As­pects in London, said in a re­port. “OPEC re­mains the only fac­tor that can sta­bilise mar­kets in the short term. But with the group out of the pic­ture, the mar­ket is look­ing else­where for a tan­gi­ble re­ac­tion.”

OPEC na­tions can with­stand a drop in crude prices while “those who are pro­duc­ing the most ex­pen­sive oil, the ra­tio­nale and the rules of the mar­ket say that they should be the first to pull or re­duce their pro­duc­tion,” the UAE’s Al Mazrouei said on Tues­day.

OPEC, whose 12 mem­bers sup­ply about 40% of the world’s oil, agreed to main­tain their col­lec­tive out­put tar­get at 30 mln bar­rels a day at a Novem­ber 27 meet­ing in Vi­enna. Qatar es­ti­mates the global sur­plus at 2 mln bpd.

In China, the world’s big­gest oil con­sumer after the U.S., crude im­ports surged to a new high in De­cem­ber, cap­ping a record for last year. Over­seas pur­chases rose 19.5% from the pre­vi­ous month to 30.4 mln metric tons. For 2014, im­ports climbed 9.5% to 310 mln tons, or about 6.2 mln bpd.

Rather than cut­ting out­put to try to bal­ance the mar­ket, OPEC pro­duc­ers are of­fer­ing dis­counts to cus­tomers in an at­tempt to de­fend mar­ket share, a Reuters re­port said.

“The mar­ket is in a bit of a panic now and the mo­men­tum is re­ally quite neg­a­tive. We haven’t seen any ac­tions or com­ments that could re­duce this ag­gres­sive sell­ing,” said Ole Hansen, se­nior com­mod­ity strate­gist at Saxo Bank.

“Although the over­pow­er­ing sup­ply and de­mand equa­tion is al­ready heav­ily-weighted in favour of the bears, the scales were fur­ther tipped in the same di­rec­tion when in­dus­try fore­cast­ers an­nounced they were low­er­ing 2015 forecasts. This just re­newed sell­ing pres­sure on the com­mod­ity, where a floor re­mains to be in sight. It ap­pears that Crude is on its way to $42, a level that many see as psy­cho­log­i­cal support,” said Jameel Ahmad, Chief Mar­ket An­a­lyst at forex bro­ker ForexTime Ltd (FXTM).

“The con­tin­u­ing de­cline in oil prices is once again pres­sur­ing en­ergy stocks, which is con­se­quently hav­ing a domino ef­fect and also lead­ing to a de­cline in global stocks. In a pat­tern we are con­tin­u­ing to see, global stocks point­ing to the down­side have in­creased in­vestor at­trac­tion to­wards the JPY with the USDJPY pulling back to 117.734,” FXTM’s Ahmad said.

“The pres­sure on global stocks ap­pears to be weigh­ing on the USD which is reignit­ing in­ter­est in gold. After de­clin­ing to $1217 on Mon­day hav­ing failed to break $1230, the metal has re­bounded and is cur­rently at $1238. If gold man­ages to break through this level, we could be look­ing at gains to­wards $1250,” he added.

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