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Message: Oil flows downhill, past $39
FUTURES MOVERS
Crude extends decline to trade below $39 a barrel
J.P. Morgan analysts cut their 2009 oil price forecast to $43 a barrel from $69
NEW YORK (MarketWatch) -- Crude-oil futures tumbled below $39 a barrel Thursday to their lowest level in four years as worries over a sharp slowdown in oil demand trumped yesterday's move by the OPEC oil cartel to slash production by a record amount.
Crude for January delivery fell $1.85, or 4.6%, to $38.21 a barrel in electronic trading on Globex.
The January contract, which expires on Friday, earlier hit an intraday low of $37.68 a barrel.
The February crude contract, which showed greater trading volume, fell $1.35 to $43.30 a barrel on Globex.
Trend-line support is roughly the $38 mark, said Edward Meir, an analyst at MF Global.
"Given how gloomy the outlook is at the moment, particularly in the aftermath of the OPEC decision, we very well could test this level by early next week," Meir said.
"Below $38, we don't see anything until the $25 level," Meir said. "This is admittedly a rather dramatic set of chart-based forecasts for a complex that only six months ago looked like it could do no wrong on the upside."
"Given how gloomy the outlook is at the moment, particularly in the aftermath of the OPEC decision, we very well could test this level [$38] by early next week."
— Edward Meir, MF Global
On Wednesday, oil futures hit their lowest level since July 2004, paying little heed to a production cut of 2.2 million barrels in current oil output by the Organization of the Petroleum Exporting Countries. January crude fell $3.54, or 8%, to end at $40.06 a barrel on the New York Mercantile Exchange.
OPEC agreed Wednesday to cut 4.2 million barrels a day from its actual September production level of 29.045 million barrels a day.
The reduction in member nations' quota levels is effective on Jan. 1. Excluding previously announced cuts, OPEC will actually cut its daily production by 2.2 million barrels from current levels.
"There are doubts among market participants of OPEC's ability to comply with these cuts given the magnitude of the cut and their previous history," said Nimit Khamar, an analyst at Sucden Financial.
"Yes, it is a large cut by OPEC, which is positive, but going forward oil prices will only be supported by evidence of compliance and provided weakening demand does not deteriorate too much," Khamar said.
OPEC, which controls about 40% of the world's oil production, will hold its next scheduled meeting on March 15 in Vienna.
"If prices slide toward $30, no doubt OPEC will be meeting before then and perhaps announcing further cuts, which will be required in our opinion," Khamar said.
J.P. Morgan cuts oil price forecast
Strategists at J.P. Morgan slashed their forecast for oil prices in 2009 to $43 a barrel from $69 a barrel, citing "the ongoing deterioration in the world economic environment and the ensuing sharp contraction in global oil demand in both 2008 and 2009."
Commercial oil stocks have already risen to close to 60 days of forward consumption and are set to rise further before OPEC gets the market under control, which is estimated to take until the second quarter, the strategists said in a research report dated Dec. 17.
"While in the near term, recent extremely high volatility means a range of $15 a barrel around the mid-price forecast is appropriate, once a supply/demand balance is achieved, the stock overhang will mean that volatility is likely to fall sharply," J.P. Morgan said.
Also on Globex Thursday, January reformulated gasoline fell 1 cent to $1.00 a gallon and January heating oil was flat at $1.44 a gallon.
Natural gas inventories fell by 124 billion cubic feet to stand at 3,167 billion cubic feet during the week ended Dec. 12, the U.S. Energy Information Administration reported Thursday.
Analysts polled by Platts expected a reduction of between 107 billion cubic feet and 112 billion cubic feet. After the data, January natural gas futures rose 4 cents to $5.66 per million British thermal units. 
Polya Lesova is a New York-based reporter for MarketWatch.
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