GDP Data Drag Down Oil Prices

Oil prices slumped to two-year lows Wednesday as traders took fright at new evidence that the U.S. economy is sliding into a recession.

Crude oil for December delivery fell 69 cents, or 3%, to $21.18 a barrel on the New York Mercantile Exchange, the lowest closing price since Oct. 10, 1999. Gasoline and heating oil futures also fell to two-year lows.

The drop in oil was the biggest one-day decline since Oct. 12. Crude futures are down 24% since Sept. 11 and are 36% lower than at this time last year.

Prices fell after the Commerce Department said gross domestic product, the broadest measure of the country’s economic health, shrank at an annual rate of 0.4% in the third quarter, the steepest decline since the first quarter of 1991. Demand for petroleum generally falls when the economy slows, undercutting prices.

Also undermining oil prices was Energy Department data showing a 2.5-million-barrel increase in national crude oil stockpiles last week.

The price decline increases the pressure on OPEC producers to make good on their plans to turn down the taps for a fourth time this year to defend prices in the group’s $22-to-$28 target range. Oil from the Organization of Petroleum Exporting Countries now is valued at $19 a barrel, compared with $27.60 on average last year.

Preparations continued ahead of an OPEC ministerial meeting Nov.14. OPEC is expected to agree to cut output by as much as 1 million barrels a day, or 4%.

OPEC is pushing for a commitment from exporters outside the cartel that they will not negate its efforts by hiking output. But OPEC has little to show for a month of lobbying countries such as Mexico, Russia and Norway to join it in preventing a supply glut.

Traders also were eyeing possible action by the United States, which may raise the nation’s Strategic Petroleum Reserve by 108million barrels to 700 million.

Additional crude will come from firms that borrowed reserve crude last year and are scheduled to restock the oil in the next two years.