US recession gloom prompts new oil low

The price of a barrel of oil falls below $48 to a three-and-a-half year low, sparked by fears of a prolonged US recession.

Empty oil barrels outside a shop in Baghdad.

The price of a barrel of oil fell below US$48 yesterday to a three-and-a-half year low, sparked by fears of a prolonged US recession. The drop followed an announcement by the National Bureau of Economic Research that the US economy has been in recession since December last year. Analysts are predicting that this may be one of the longest downturns since the end of the Second World War, partly because of the large number of jobs that have been lost.

"We are in an economy that has slowed down significantly," said Henry Paulson, the US Treasury secretary. "The American people know that, and I think the American people have known that for some time." The International Monetary Fund (IMF) predicts the US, Europe and Japan will all contract next year, the first simultaneous downturn by the big three economies since the Second World War. "This may be referred to as the Great Recession because of its length," said Norbert Ore, the chairman of the Institute for Supply Management's factory survey, which provides a key indicator of US manufacturing trends.

The fall in oil prices will disappoint many in the Gulf. Saudi Arabia called this week for an oil price of $75 a barrel and a cut in production, but this suggestion has been shrugged off by traders. The UAE has felt the effects of the global slowdown, with house prices forecast to drop in Dubai, according to the Philippines-based Global Property Guide, a researcher of international property trends.

Oil, which made up about 98 per cent of exports in 2006, according to the Abu Dhabi Department of Planning and Development, has fallen from a high of $147 in July to $47.36 a barrel on the New York Mercantile Exchange yesterday. However, the country is not expected to go into recession. According to forecasts by the IMF, growth will be seven per cent this year, falling to six per cent next year. Last month, Morgan Stanley forecast GDP growth of 6.4 per cent this year, falling to 3.8 per cent next year.