Oil tumbles on fears of economic slump

AP News
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Posted: Sep 06, 2011 3:55 PM
Oil tumbles on fears of economic slump

Oil slipped Tuesday on fears that the U.S. and Europe are headed for a prolonged economic slump.

Benchmark West Texas Intermediate crude lost 43 cents to $86.02 per barrel in New York.

That was well off the lows for the day. After tumbling as low as $83.20 per barrel, the U.S benchmark recovered as traders boosted the price of other oil varieties, including Brent crude, because international supplies remain tight.

Brent crude added $2.81, or 2.6 percent, to $112.89 in London.

Still, analysts said, investors continue to be spooked by a steady drumbeat of disappointing economic news. The economy is struggling to grow. And the brinksmanship in Congress over the federal debt limit and last month's first-ever downgrade of U.S. debt have raised concerns about the nation's ability to fix its financial problems.

"It's going to be a nerve-wracking 12 months," analyst and trader Stephen Schork said. "A lot of people are just trying to get their bearings."

Cameron Hanover analyst Peter Beutel said investors are waiting for President Obama and the Federal Reserve to explain how they'll stimulate the economy and create jobs.

With the unemployment rate hovering at 9.1 percent, "it will take something major from the White House or from the Fed to turn this around," Beutel said.

Earlier this year, economists predicted that a rebounding global economy would push world oil demand to record levels in 2011. Now, analysts aren't so certain.

China and other developing nations are still going to drive oil demand. But they won't grow as fast if consumers in the U.S. and Europe cut back on purchases of clothing, toys, electronics and other goods that are made in foreign factories.

"Oil demand both domestically and globally will fall short of most expectations during the current second half of 2011," independent analyst Jim Ritterbusch said.

Meanwhile, retail gasoline was flat overnight at a national average of $3.66 per gallon. A gallon of regular unleaded is 97.7 cents higher than it was a year ago.

In other trading, heating oil added 1.28 cents to $3.0102 per gallon and gasoline futures dropped 1.7 cents to $2.8226 per gallon. Natural gas added 6.6 cents to $3.938 per 1,000 cubic feet.