Crude oil prices continued to retreat on Thursday, in spite of Opec announcing the largest supply cut in the cartel's history on Wednesday in its latest effort to stabilise the market.
Opec pledged to cut production by a further 2.2m barrels a day, on top of cuts totalling 2m b/d agreed earlier this year.
The benchmark US crude price sank below the $38-a- barrel level with Nymex January dropping to $37.68, the lowest level since early July 2004, before recovering to trade $1.66 lower at $38.40.
The January contract expires on Saturday and there is already significantly more open interest in the February WTI contract, which becomes the benchmark next week, down $1.11 to $43.50 a barrel, after hitting a low of $42.73. ICE February Brent lost 70 cents to $44.83 a barrel.
Ed Meir, of MF Global, said the market's reaction provided "a resounding vote of no confidence in the cartel's ability to curtail production".
Prices for lower quality, heavy, sour crude rose with the brunt of Opec's cuts likely in those grades, providing tentative signs that the cartel's move might help stabilise the market.
Dubai crude, the heavy, sour benchmark, rose about 20 cents to $41.15 a barrel in the private, bilateral over-the-counter market, narrowing the differential with higher quality grades such as Brent or WTI.
Adam Sieminski, of Deutsche Bank, warned that global oil demand would next year decline by 1m barrels per day, or 1.2 per cent, the biggest demand contraction since 1983. Mr Sieminski expects additional supply cuts from Opec next year but Deutsche is still forecasting that WTI will average $47.50 a barrel in 2009, rising to $55 in 2010, one of the most bearish forecasts in the market.
Gold slipped 1.2 per cent to $855 a troy ounce, under pressure from a recovery in the dollar and unable to match the two-month high of $881.20 reached in Wednesday's session.
After falling sharply earlier this year, agricultural commodity prices have shown signs of stabilising recently, amid warnings that farmers are likely to reduce planting next year in response to low prices, tight credit conditions and high fertiliser costs.
The International Grains Council, the London-based intergovernmental body, the United Nations' Food and Agriculture Organisation and Stratégie Grains, the Paris-based consultancy, warned that wheat plantings would be lower next year.
The IGC said a decline in planting and lower yields would lead to a smaller global wheat crop in 2009-10, in spite of generally favourable growing conditions in the northern hemisphere.
"Already, early indications for the first of the 2009 crops just sown in some major producing and exporting countries point to area reductions, such as for winter grains, mostly wheat, in Europe and the US", said the IGC. The FAO added that US winter wheat planting was down between 3-4 per cent and 2 per cent lower in the EU.
In its first forecast for 2009, Stratégie Grains projected that the EU's total grain harvest would fall 6 per cent to 292m tonnes next year, due to a 2 per cent drop in the area sown and also because of lower yields.
CBOT March wheat dipped ½ cent to $5.57 a bushel while CBOT March corn lost 7¾ cents at $3.81¾ a bushel and CBOT January soyabeans fell 4½ cents to $8.59½ a bushel.
Copyright: The Financial Times Limited 2008