Oil falls to 3-week low
Forecasts predict massive decline in demand for 2009. 'We don't know where the bottom is,' says expert.
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NEW YORK (CNNMoney.com) -- Oil prices fell nearly $2 a barrel Thursday, to the lowest close since Christmas Eve, as global economic weakness and falling demand continued to weigh on the market.
U.S. crude for February delivery settled down $1.88 to $35.40 a barrel in New York, the lowest settlement since crude ended the day at $35.35 on Dec. 24.
Oil earlier touched $33.20 a barrel, a trading low not seen since Dec. 19, when the previous front-month contract ended its trading run at $32.40.
"I don't think the magnitude of the slowdown (in demand) for 2009 is fully in place yet," said James Cordier, founder of commodity brokerage OptionSellers.com.
Global oil consumption will contract this year by much more than expected, according to the Organization of Petroleum Exporting Countries whose members produce about 40% of the world's oil.
OPEC said it expected world demand for crude to fall by 180,000 barrels per day in 2009, which was 30,000 barrels greater than the decline the group had predicted in its previous forecast.
"The considerable uncertainty about the course of the (economic) recovery implies the potential for further deterioration in world oil demand growth this year," OPEC said in the report.
The economies of several OPEC nations, such as Venezuela and Iran, depend heavily on oil revenue, and the group has been scrambling to cut production in order to keep prices above water.
Since September 2008, announced production cuts from OPEC have totaled 4.2 million barrels a day, or about 5% of the world's oil supply.
"There's really nothing else they can try," said Cordier, who added that the lower oil prices go, the less effective OPEC cuts may be, since cash-strapped OPEC nations will be less likely to meet their pledged cuts. "The market knows that," he said.
OPEC was more generous with its predictions for 2009 than the U.S. government.
The Energy Department said in its monthly energy outlook report this week that it expects global oil consumption to fall by about 800,000 barrels a day as the world economy slows.
"We don't know where the bottom is, we just know (oil) prices are still too high," said Cordier.
Gasoline: In its weekly inventory report yesterday, the government also said that demand for motor gasoline averaged 8.9 million barrels per day over the last four weeks, down by 2.1% from the same period a year earlier.
The average price of gasoline was up 0.7 cent to $1.799 a gallon at the pump Thursday, according to a daily survey of gas station credit card swipes from motorist group AAA.
But with oil prices falling, it may only be a matter of time before gasoline prices start dropping again, according to Geoff Sundstrom, fuel price analyst at AAA.
"There's absolutely no reason why the price of gasoline should be as high as it is," said Sundstrom.
Changes in the price of retail gasoline usually lag the price of crude.
Economy: Investors are looking toward the equity markets and other indicators to gauge the state of the economy, but so far no one seems to have seen a light at the end of the tunnel, according to Cordier.
In Europe, the European Central Bank cut its key interest rate Thursday to 2%, matching its lowest rate ever - a sign that consumers and businesses in Europe are hurting for cash.
And in the United States, the world's largest oil consumer, congressmen continued to battle over the second half of the $700 billion banking sector bailout and a $825 billion economic stimulus package, which House Speaker Nancy Pelosi, D-Calif., referred to as "just the first step." 
