Oil prices fall on fears of slow economic growth

AP News
Posted: Nov 21, 2011 3:08 PM
Oil prices fall on fears of slow economic growth

Oil prices fell Monday on fears that the world economy will weaken and push down demand for crude.

West Texas Intermediate oil, which is used as a benchmark to price oil in much of the U.S., fell 75 cents to finish at $96.92 a barrel in New York. Brent crude, which is used to price oil produced in many foreign countries, fell 74 cents to end at $106.66 a barrel in London.

The global economy is under assault from several directions. The inability of Europe to deal with its crushing debt problems is raising concerns that the region will fall into recession. Also, as long as the crisis continues, the fear remains that the world financial system could seize up if European banks and banks with ties to Europe stop lending.

"The market's biggest concern is the ongoing strife in Europe and the uncertainty that brings," said Phil Flynn, an analyst at PFG Best in Chicago.

When the economy slows, demand for crude oil and refined products like diesel and gasoline falls because fewer goods are produced and shipped, and people travel less.

The U.S. national average for a gallon of regular gasoline fell about half a cent to $3.35 on Monday, according to AAA, Oil Price Information Service and Wright Express.

Another concern is that the Congressional committee set up to reduce U.S. spending, known as the super committee, will fail to come up with a plan. That could lead to further gridlock in Washington at a time when the U.S. economy is fragile.

"The supercommittee isn't looking very super," Flynn said.

Economic fears also sent major stock indexes down about 2 percent Monday. In the past, stocks and oil prices often moved in opposite directions because high oil prices often led to high inflation, which hurt stock prices. In recent years, however, inflation worries have receded and oil and the stock market have tended to move in the same direction. Both have risen when it appears the economy will grow, and fallen when it looks like the economy will shrink.

"The oil market is moving in tandem with the big swings we are seeing in the stock market," said energy consultant Jim Ritterbusch.

The price of oil was also pushed lower by a stronger dollar. Oil is priced in dollars, so when the dollar becomes more valuable compared with other currencies, oil becomes more expensive to holders of foreign currency and they tend to buy less of it.

Benchmark U.S. crude spiked to nearly $103 a barrel last Wednesday after a pipeline company announced plans to try to relieve a glut of landlocked oil at a major hub in Oklahoma by shipping it to the gulf coast. Brent crude fell because the plan would add to supplies of oil that can be shipped by sea, relieving a relative shortage.

Now both are falling because economies around the world may need less oil no matter how it is delivered.

In other energy trading in New York, natural gas rose 8 cents to finish at $3.399 per 1,000 cubic feet, gasoline futures rose 1.06 cents $2.4890 a gallon and heating oil fell 3.82 cents to $2.9943 a gallon..

Jonathan Fahey can be reached at http://twitter.com/JonathanFahey