Dec. 4 (Bloomberg) -- Crude oil fell below $44 a barrel to the lowest price since January 2005 and gasoline futures dropped under $1 a gallon as the recession in the U.S., Europe and Japan cuts fuel consumption.

Prices may dip below $25 a barrel next year if the contraction spreads to China, Merrill Lynch & Co. said in a report today. U.S. fuel demand during the four weeks ended Nov. 28 was down 6.2 percent from a year earlier, an Energy Department report showed yesterday.

“We’ve got the U.S., U.K., Europe and Japan all in recession for the first time since World War II, and the oil market is reacting,” said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $5 billion energy-company bond portfolio.

Crude oil for January delivery fell $3.12, or 6.7 percent, to $43.67 a barrel at 2:40 p.m. on the New York Mercantile Exchange, the lowest settlement price since Jan. 5, 2005. Oil prices have tumbled 70 percent since reaching a record $147.27 on July 11.

Gasoline for January delivery declined 7.2 cents, or 6.9 percent, to 96.95 cents a gallon in New York, the lowest settlement since the contract was introduced in October 2005.

Pump prices have followed futures lower. Regular gasoline, averaged nationwide, dropped 1.4 cents to $1.789 a gallon, AAA, the largest U.S. motorist organization, said on its Web site today. It’s the lowest since January 2005. The fuel has fallen 57 percent from the record $4.114 a gallon reached on July 17.

‘No Sign’

“There is no sign where it will stop,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “We are now looking at $41.15, which was the pre-Gulf-War high, and after that at the $40 and $37 level.”

Oil reached a then-record $41.15 on Oct. 10, 1990, when Iraqi troops were occupying Kuwait. The milestone held until May 2004. Prices were last below $40 a barrel in July 2004.

“A temporary drop below $25 a barrel is possible if the global recession extends to China and significant non-OPEC cuts are required,” Merrill commodity strategist Francisco Blanch said in today’s report. “In the short run, global oil-demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations.”

Royal Dutch Shell Plc said that a fire broke out today at its Pernis refinery in the Netherlands, the largest in Europe. The blaze started at the gasoline-making catalytic cracker at the 416,000 barrel-a-day plant, the Rotterdam fire department said.

Heating Fuels

Prices of heating fuels also dropped today. Heating oil for January delivery fell 7.49 cents, or 4.7 percent, to settle at $1.5091 a gallon in New York, the lowest since Jan. 22, 2007. Natural gas for January delivery fell 33 cents, or 5.2 percent, to $6.017 per million British thermal units, the lowest settlement since Sept. 20, 2007.

The four-week average of petroleum products supplied in the U.S. was 19.3 million barrels a day, down from 20.5 million barrels a day a year ago, yesterday’s report showed.

“Nothing except a major shock is going to revive this market as long as risk aversion predominates,” said Andrey Kryuchenkov, an analyst with VTB Group in London. “Demand numbers were down again yesterday, reflecting the economic crisis.”

The U.S. Labor Department will probably say tomorrow that payrolls in November dropped the most since the 2001 terrorist attacks, a Bloomberg news survey showed. The U.S. entered a recession in December 2007, the National Bureau of Economic Research, a private, non-profit panel of economists that dates American business cycles, said on Dec. 1.

European Economy

European Central Bank President Jean-Claude Trichet said the euro region’s economy will shrink next year for the first time since 2003.

Qatar’s oil minister said yesterday that the Organization of Petroleum Exporting Counties will “definitely” cut output at its next meeting in Algeria on Dec. 17.

“OPEC is sure to cut quotas at the next meeting,” MFC Global’s Hodge said. “If OPEC wants to have the desired impact on the market, they are going to have to show us in a physical sense, not just talk about cuts.”

OPEC oil ministers agreed on Oct. 24 in Vienna that the 11 members with quotas would lower supply by 1.5 million barrels a day starting in November. Production by the 11, excluding Iraq and Indonesia, declined 725,000 barrels to 28.24 million barrels a day last month, according to data compiled by Bloomberg News.

Inventory Reductions

“Prices won’t rebound until either the financial crisis is fixed or oil-market fundamentals tighten,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “We will have to see substantial inventory reductions and OPEC cuts.”

U.S. crude-oil supplies fell 456,000 barrels to 320.4 million barrels last week, the Energy Department said yesterday. It was the first decline in 10 weeks.

Brent crude oil for January settlement fell $3.16, or 7 percent, to $42.28 a barrel on London’s ICE Futures Europe exchange, the lowest settlement since Jan. 5, 2005.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Last Updated: December 4, 2008 18:12 EST