biggest dump in oil in 17 years

Oil prices plunge on economic concerns
Article from: Agence France-Presse


July 16, 2008 07:11am

OIL plunged in the steepest fall in 17 years in New York overnight amid concerns that slower economic growth in the United States, the world's largest energy consumer, could dampen demand.

New York's main oil contract, light sweet crude for August delivery, sank $US6.44 to close at $US138.74 a barrel. It was the sharpest single-session decline since January 1991.

In London, Brent North Sea oil for August fell $US5.17 to settle at $US138.75.

Crude oil prices skidded after US Federal Reserve chairman Ben Bernanke's commnents citing a range of economic risks and a ``high degree of uncertainty'' about the outlook.

"Ben Bernanke's gloomy assessment of the economy and a cut in the demand forecast by OPEC were factors behind the huge price drop in crude,'' said Al Goldman at Wachovia Securities.

Traders remain on edge about the possibility of a prolonged economic slowdown in the United States because the country consumes nearly 20 per cent of the world's oil output.

Soaring oil prices, and related skyrocketing gasoline prices, are partly to blame for the US economy's sluggishness.

Mastercard, the credit card giant, said Tuesday that US gasoline demand had fallen last week for the 11th consecutive week, despite the peak-demand summer holiday driving season underway, as motorists curbed spending in the face of higher prices.

Trading on the oil market was volatile Tuesday. Earlier, prices had jumped toward recent record peaks as traders reacted to the dollar striking a record low level against the euro.

In the foreign exchange market, the euro hit a record $US1.6038 on mounting investor fears about the stormy US economic outlook, dealers said.

World equity markets also fell heavily on skepticism that a dramatic US government plan to rescue the two mortgage-finance giants, unveiled late Sunday, would contain the ongoing crisis in American finance, analysts said.

The weakening US currency stimulates demand for dollar-denominated raw materials like oil, which become relatively cheaper for buyers using stronger currencies.

A five-day strike by oil workers in Brazil against state-run Petrobras meanwhile exacerbated supply concerns, traders said.

Demand worries were stoked by the oil producers' cartel OPEC, which revised lower its forecast for world demand growth this year to 1.20 per cent from 1.28 per cent, citing the economic slowdown and the effect of high fuel prices.

"The new price structure and slower world economy have helped dampen oil demand growth in many regions,'' the Organization of the Petroleum Exporting Countries said in its monthly report.

The price of oil has more than doubled over the past 12 months. Both benchmark futures contracts hit new record peaks last Friday: $US147.27 in New York and $US147.50 in London.