Oil Falls Below $88
Friday, 10 October 2008

AP, SINGAPORE -- Oil prices fell below $88 a barrel Thursday in Asia on investor fears that crude demand will weaken as turmoil in the financial system pushes economies in the U.S. and Europe into recession.

Light, sweet crude for November delivery was down $1.39 to $87.56 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract overnight fell $1.11 to settle at $88.95.
 
The U.S. Federal Reserve, along with central banks in Europe and China cut interest rates Wednesday in a bid to jump-start lending. But markets in the U.S. and Europe sank on deepening fears about frozen lending markets and sluggish growth. The Dow Jones industrial average lost another 2 percent, and the index has shed more than a third of its value since its all-time high set one year ago Thursday.
 
''Traders are expecting the world to move toward recession, with the U.S. and Europe especially a concern,'' said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. ''Based on the short-term trend, you could see prices approaching $80 in next week.''
 
Weighing on prices was evidence of falling demand in the U.S, where crude inventories jumped by 8.1 million barrels last week while gasoline stocks surged 7.2 million barrels, the Energy Information Administration said Wednesday in its weekly inventory report.
 
Both increases far exceeded expectations, reflecting both persistently weak demand and a recovery of Gulf Coast energy output following shutdowns prompted by Hurricane Ike last month.
 
Meanwhile, demand for gasoline over the four weeks ended Oct. 3 was 5.3 percent lower than a year earlier, averaging nearly 8.8 million barrels a day, according to the EIA report.
 
Crude has fallen about 40 percent since surging to an all-time record $147.27 a barrel on July 11.
 
''The bubble has burst,'' Rigby said. ''Before any real increase in prices, we need to see some good economic data from around the world, and that could be a few months.''
 
Prices were supported by speculation that the Organization of the Petroleum Exporting Countries may cut output to keep prices from falling too far. Venezuelan President Hugo Chavez said Wednesday that some OPEC members want an extraordinary meeting before the group's Dec. 17 meeting in Algeria.
 
OPEC's decision last month to cut production by 520,000 barrels a day failed to halt oil's slide.
 
''I think OPEC will definitely start to talk the market up,'' Rigby said. ''They'll try to keep their members to their quotas. Then if prices fall below $80, they may cut production.''
 
In other Nymex trading, heating oil futures fell 1.25 cents to $2.48 a gallon, while gasoline prices dropped 1.19 cents to $2.02 a gallon. Natural gas for November delivery rose 4.9 cents to $6.79 per 1,000 cubic feet.
 
In London, November Brent crude fell $1.35 to $83.01 a barrel on the ICE Futures exchange.

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