Crude Oil Drops to 8-Month Low on Concern Demand Will Weaken

By Margot Habiby

Oct. 6 (Bloomberg) -- Crude oil fell to the lowest since February as the credit crisis deepened in Europe, adding to concern that global economic growth will slow and reduce demand for fuels.

Oil dropped as low as $87.56 a barrel in New York as European leaders pledged to bail out troubled banks and protect depositors and the dollar rose against the euro. OPEC President Chakib Khelil said today the price slide will continue next year.

``The negative sentiment that's growing in Europe is definitely having an impact,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``The dollar going up helped oil start on a down note. People are looking at how far it will drop rather than looking at a technical rebound.''

Crude oil for November delivery fell $6.07, or 6.5 percent, to settle at $87.81 a barrel at 2:46 p.m. on the New York Mercantile Exchange. Earlier, it touched the lowest since Feb. 7. Futures have fallen 40 percent from the record $147.27 reached July 11.

New York oil prices declined 12 percent last week as reports showed U.S. fuel demand the previous four weeks was the lowest in almost seven years and manufacturing shrank in September at the fastest pace since the last recession in 2001. The Labor Department reported a bigger-than-expected 159,000 drop in payrolls in September last week.

``With the stream of economic distress signals continuing unabated, the oil market is betting that demand will really suffer,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``A further push towards $85 is looking highly likely in these feverish conditions.''

Dollar Gains

The dollar rose to the highest since August 2007 against a basket of currencies, reducing the investment appeal of dollar- denominated commodities. The euro fell as low as $1.3444, from $1.3772 Oct. 3, after Germany said it will guarantee personal bank deposits, in a bid to stabilize the nation's banking system.

``We're in a loop where lower oil prices helped to support the U.S. dollar, in contrast to the prior cycle when a weak U.S. dollar helped push crude oil higher,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York.

The Dow Jones Industrial Average fell below 10,000 today for the first time since October 2004. It was down 454.70, or 4.4 percent, to 9,870.68 at 3:35 p.m. in New York.


The U.S. may enter a recession, the International Monetary Fund said on Oct. 2 in its most pessimistic outlook for the world's largest economy since the credit crisis began last year.

The credit crisis will deepen a U.S. recession and extend it into next year, according to a survey by the National Association for Business Economics. The economy will stall in the fourth quarter, followed by 1.3 percent annualized growth in the first three months of 2009, according to the poll of 48 professional forecasters taken Sept. 8 to Sept. 18.

``It is doubtful that the vicious downward decline we are seeing in most markets will end anytime soon, even if credit markets start to thaw out,'' said Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut.

Saudi Aramco, the world's largest state oil company, cut its prices to Asia and the U.S. The company trimmed the price of its Arab Extra Light crude by 30 cents to a discount of $3.40 a barrel below the West Texas Intermediate benchmark, the Dhahran, Saudi Arabia-based producer said yesterday in a faxed statement. The company also cut the price of its Arab Light grade.

Brent crude oil for November settlement fell $6.57, or 7.3 percent, to $83.68 a barrel on London's ICE Futures Europe exchange, the lowest closing price since Oct. 23, 2007.

Fuel Prices Fall

Gasoline for November delivery fell 16.92 cents, or 7.6 percent, to $2.0591 a gallon, the lowest settlement price since Oct. 10, 2007. It touched $2.053 a gallon in intraday trading. Gasoline is down 43 percent from a record $3.631 on July 11.

Regular gasoline at the pump, averaged nationwide, dropped 2 cents to $3.504 a gallon, according to AAA, the nation's largest motorist organization. The price has fallen 15 percent from a July record.

Heating oil for November delivery fell 18.8 cents, or 7.1 percent, to $2.4740 a gallon in New York, the lowest close since Feb. 7.

To contact the reporter on this story: Margot Habiby in Dallas at

Last Updated: October 6, 2008 15:59 EDT ... ommodities