Oil drops to lowest price since 2010

AP News
Posted: Oct 03, 2011 3:30 PM
Oil drops to lowest price since 2010

Oil started the final quarter of 2011 with a whimper.

The benchmark price dropped below $78 per barrel to its lowest level in more than a year, as fears of another recession grew. Oil fell along with broad declines on Wall Street: The Dow Jones industrial average, the S&P 500 and the Nasdaq composite were each down about 2 percent.

Investors are concerned about a pair of recent announcements that point to weaker demand and even lower energy prices this year. Greece, at the center of the European debt crisis, said over the weekend that it will miss its lower spending targets despite severe cost-cutting. And China's manufacturing sector appeared to cool off in September.

"We're also at a lull in the market" after the summer driving season, independent analyst Stephen Schork said. "This is when you tend to see weakness" in oil prices.

Benchmark crude on Monday fell $1.59, or 2 percent, to finish the day at $77.61 per barrel in New York. Prices tumbled as low as $76.85 earlier in the day. Oil hasn't been that low since September 2010. In London, Brent crude dropped $1.05 to end at $101.71 a barrel.

The decline in oil markets may give drivers a break this winter. Gasoline prices have dropped during the past few months, though at a slower pace than oil. The price of gas has fallen 14 percent since peaking in May near $4 per gallon. Oil is down by more than twice as much _ 32 percent _ in that time.

The national average for a gallon of regular gas fell a penny Monday to $3.417, according to AAA, Wright Express and Oil Price Information Service. It's still about 71 cents more than it was a year ago.

Patrick DeHaan, senior petroleum analyst at GasBuddy.com, expects gas prices to average as low as $3.25 a gallon from now until the end of the year. Oil and gasoline prices likely won't move much lower unless there are specific signs that the economy is shrinking, he said.

"We're looking at a sluggish recovery right now, but a recovery nonetheless," DeHaan said.

An ongoing worry for investors in recent months has been Greece's debt problems and their impact on the rest of Europe. Without more financial aid, Greece will start running out of money in two weeks. A Greek default could spread to neighboring countries and possibly trigger widespread banking problems. That would hamper world energy demand as lending slows and businesses cut spending.

Meanwhile, manufacturing surveys out of China pointed to weaker activity in September as prices for raw materials rose. One survey suggested manufacturing was stagnant, while another showed slight improvement. Both were disappointments for oil analysts and traders, since China is the second largest oil consumer in the world behind the U.S.

In the U.S. a trade group reported that manufacturing activity grew last month, although the Institute for Supply Management index showed that the pace of growth remained weak.

In other energy trading, heating oil and gasoline futures were both down nearly 3 cents to end at $2.7529 and $2.5110 per gallon, respectively. Natural gas lost 4.9 cents to finish at $3.617 per 1,000 cubic feet.


Chris Kahn can be reached at http://twitter.com/ChrisKahnAP