Oil falls below $34 after Russia-Ukraine gas deal

Following a deal between Moscow and Kiev, Russian gas company Gazprom resumed pumping gas into Ukraine on its way to Europe, which means that there would no longer be an increased need for oil products to replace gas.

 

U.S. light crude for February delivery was $3.01 lower at $33.50 a barrel by 1139 GMT, having previously hit a new 2009 low of $32.70.

 

"The weak (U.S.) contract is due in part to the Russian gas deal and the effect the gloomy economic picture has on demand. Weak sterling is also having an impact," said Christopher Bellew of Bache Financial, Reuters reported.

 

Oil prices have fallen by more than three quarters since record highs above $147 a barrel hit last July, as financial turmoil has evolved into a global economic crisis and weakened demand.

 

Two recent supportive factors have been removed, after Russia and Ukraine signed their 10-year gas deal and a ceasefire between Israel and Hamas in Gaza eased fears of disruption to supply.

 

Last week both the Organization of the Petroleum Exporting Countries (OPEC) cartel and the International Energy Agency, energy policy adviser to major industrialized countries, lowered their demand forecasts for this year.

 

OPEC, whose member nations together pump about 40 percent of world crude, would consider further cuts to oil production if prices continued to fall, Algerian Energy Minister Chakib Khelil said Saturday.

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Another cartel member, Venezuela, said at the weekend that it was prepared to reduce its oil production in a bid to boost prices.