Sun, Feb 03, 2008 - Page 10 News List

OIL: Crude prices drop sharply on dismal economic reports

AP , NEW YORK

Oil prices fell sharply on Friday, closing well under US$90 a barrel after a string of dismal economic reports renewed worries that a possible US recession could stunt oil demand.

Responding to recent price declines, OPEC said on Friday it would maintain current oil output levels.

The week ended with the US Labor Department reporting that employers cut 17,000 jobs last month, the first reduction in more than four years and a sign that the economy continues to weaken. Construction spending also fell by a record amount, according to the Commerce Department, reflecting a sharp pullback in residential building.

An expansion in the US manufacturing sector last month didn't inspire traders. The modest increase, reported by the Institute for Supply Management on Friday, follows a contraction in December.

"The jobs number is truly calling into question what kind of demand we're going to have in this first half of this year," said James Cordier, president of Liberty Trading Group in Tampa, Florida. "Economic conditions are deteriorating faster than earlier expected."

On Thursday, the US government said consumer spending in December posted its worst performance since June, while claims for unemployment benefits jumped more than three times what economists expected.

"All signs right now are pointing to a weaker economy," Cordier said.

Light, sweet crude for March delivery dropped US$2.79 to settle at US$88.96 a barrel on the New York Mercantile Exchange. In London, Brent crude futures settled US$2.77 lower at US$89.44 a barrel on the ICE Futures exchange.

On Friday in Vienna, OPEC said output levels would not be increased out of concerns that a weakening global economy will result in softer demand.

"The OPEC decision was telegraphed by oil minister comments over the past two weeks, so the market was well-prepared for a quota rollover," said Tim Evans, an energy analyst at Citigroup Global Markets.

Friday's special meeting was set in December after prices flirted with the US$100-a-barrel level to give the 13-nation organization a chance to step in and increase output in case volatile markets needed calming.

However, looking ahead to the next meeting next month, Qatar's Abdullah bin Hamad al-Attiyah said "all the possibilities are there" -- shorthand for a possible cut in production, if the US economy weakens enough to cut into demand.

Through Wednesday, oil prices had risen US$5.34 a barrel, or 6.1 percent, over five trading days on optimism that the US Federal Reserve's rate cuts and an economic stimulus package working its way through Congress will stave off a serious downturn. But many investors doubt the plans will work.

Heating oil futures decreased US$0.0802 to settle at US$2.4489 a gallon (US$0.6469 per liter), while gasoline prices lost US$0.0738 to US$2.2834 a gallon.

Natural gas futures declined US$0.334 to settle at US$7.740 per 1,000 cubic feet (US$0.2733 per cubic meter).

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