Oil fell below $40 a barrel on Tuesday, pressured by gloom about prospects for world economic growth which outweighed heightened tensions in the Middle East due to the Israeli-Hamas conflict.

Prices had jumped as much as 12 percent on Monday after Israel launched its fiercest air offensive in the Hamas-ruled Gaza strip in decades.

U.S. crude was down 77 cents at $39.25 a barrel by 1151 GMT, having earlier touched a session high of $40.39.

London Brent fell 60 cents to $39.95.

“With most global economies struggling and credit markets still in an impaired state, it is hard to get too excited about the upside potential in energy markets attributable solely to geopolitical factors unless, of course, these are directed at the heart of the oil supply system,” said Edward Meir of futures broker MF Global.

Oil is heading for a loss of nearly 60 percent this year, its biggest annual fall since futures began trading 25 years ago. It has dropped more than $100 from a record peak above $147 a barrel in July.

“People are still wary of the global economic problems. There is still pessimistic news coming out of the States,” said Gerard Rigby, an analyst at Fuel First Consulting in Sydney.

He said he would also be watching the dollar and stock markets moves.

The dollar slipped against the euro and a basket of currencies, depressed partly by the Israeli offensive, which has helped to dampen dollar sentiment.

The Organization of the Petroleum Exporting Countries has agreed its biggest-ever production cut of 2.2 million barrels per day (bpd) to fight the oil market slide.

The group has cut output three times in an effort to remove about 5 percent of world supply.

OPEC oil supply, excluding Iraq and Indonesia, is expected to fall by 400,000 barrels per day in December as members boost compliance with their deal to reduce output, consultant Petrologistics said.

The estimate indicates OPEC has more than delivered on its pledge to lower supply from 11 members to 27.3 million barrels per day from Nov.1 to prop up prices.

A poll of analysts forecast that U.S. crude stocks will have fallen by 1.4 million barrels last week, while distillate inventories will have risen by 1 million barrels and gasoline stocks increased by 1.5 million barrels.

Weekly U.S. fuel inventory data is due on Wednesday.

LONDON, Dec 30 (Reuters)

Nickel had a good day, falling from $10.50 in the pre-dawn hours but getting almost all the way back before closing at $10.475/lb., up 14 1/3 cents. Zinc spun its wheels, ending at $0.8612/lb., down a half-cent. Aluminum was modestly higher, adding less than a half-cent, to $1.3184/lb., while lead was pummeled, plunging to its intraday low of $0.8393/lb., down better than 3½ cents.

Though it was up for the first time this week, copper had a pretty unimpressive day, considering the action in the precious metals and energy markets, and that the Reuters/Jefferies CRB Index increased as much as 2.7%. Traders cited concerns that Chinese demand won’t be able to make up for declining US needs.

China’s imports of unwrought copper and semi-finished products fell 19.2% in May as compared with April. They were also off 9.8% in May, year over year.

Analysts expect that Chinese refined copper imports data, due at the end of the month, will show a drop of more than 6% from April to May as demand growth slows and domestic output ramps up.

Tighter monetary policies in the country are also likely to affect demand prospects. China’s central bank has raised the amount that lenders must hold in reserve by a full percentage point, suggesting authorities are anxious to hold down inflation that could develop as reconstruction work after last month’s earthquake begins.

On the supply side, inventories monitored by the LME rose 725 metric tons, to 121,275 tons, on Wednesday.

Protesters yesterday blocked roads leading into Southern Copper’s Ilo smelter and Cuajone mine in Peru, as mining companies throughout the country face escalating demands from workers and local communities.

Meanwhile, Freeport-McMoRan said output at its Peruvian copper pit Cerro Verde was as yet unaffected despite workers having gone out on strike over a contract dispute on Tuesday.

Source: Base Metals Remain Stagnant

June reformulated gasoline lost a penny, to $3.17/gallon.

Dow Jones MarketWatch wrote that, “The expiration of options on June crude also played a key role in oil’s volatile moves Thursday as did Congress’ passage of legislation that offers regulators greater oversight of energy markets.”

In addition, traders are “seeing a round of profit taking swamping the market,” said Thomas Hartmann, of Altavest Worldwide Trading. “Prices have been unable to really push above the $126.50 level in the last four sessions.”

Ho hum. “Up one day, down the next, and the same ground keeps getting covered as crude oil prices consolidate in a range around $125,” said Michael Fitzpatrick, of MF Global.

The EIA’s Wednesday inventory reports showed a gain in crude stocks, as expected, but “traders have reacted to this as they have to most every pullback since the winter lows: renews buying fervor,” Fitzpatrick wrote.

Source: Crude Plummets, but Then Recovers

Since natural gas can now be liquefied and transported to the highest bidder around the world, booming demand in China, India and Southeast Asia is having a significant impact. Demand trends will stoke the natural gas flame for years to come.

As you can see from the chart above, liquefied natural gas (LNG) has been one of the fastest-growing energy markets in the United States. In 2001, 240 bcf (billion cubic feet) of LNG were imported. Six years later, in 2007, 240 bcf of LNG in just the first four months of the year.

But something changed last August. LNG imports were slashed. The decline in LNG imports coincided with a surge of more than 93% in natural gas prices here in North America.

You see, the U.S. isn’t dependent upon LNG imports for natural gas… but natural gas prices are highly dependent on LNG imports. In the past, LNG has always been there to fill that extra bit of demand that exceeds domestic production.

But when LNG isn’t available to fill that gap, prices soar.

It’s no wonder that Michael Stoppard, director of global LNG at Cambridge Energy Research Associates, claims LNG is “the next truly global energy business opportunity.” Learn how to capitalize on the global natural gas boom here.

Good investing,

Andrew Mickey

Editor in chief, BreakAway Investor

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