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Oil drops below $90 a barrel

SINGAPORE (AP) — Oil prices fell further Friday on worries that a flagging U.S. economy would weigh on crude demand.

Concerns about the economy were stoked by a U.S. Commerce Department report Thursday that construction of new homes fell nearly a quarter in 2007, the largest drop in 27 years. Also, a Philadelphia Federal Reserve survey of regional manufacturing activity registered a negative 20.9 from a revised reading of negative 1.6 in December, coming in well short of expectations.

The data added to the negative economic sentiment that has been the market’s dominant driver in recent days, pushing prices down more than US$10 from their record over US$100 a barrel two weeks ago.

It’s one piece of bad news after another, said Victor Shum, an energy analyst with Purvin Gertz in Singapore. The worries about the U.S. economic slowdown, and of oil demand slowing down in the U.S. and other parts of the world, continue to weigh on the market.

The White House and Congress moved toward a rescue of the U.S. economy Thursday through steps that would include tax rebates. Federal Reserve Chairman Ben Bernanke endorsed the idea of putting money into the hands of those who would spend it quickly and boost the flagging economy. He said he expects slower economic growth in 2008, but no recession.

The good news, if you can call it that, is that the U.S. Federal Reserve recognizes the weaker economic outlook, and it looks like actions will be taken both by the Bush administration and the Fed to help bolster the economy, Shum said.

Light, sweet crude for February delivery dropped 41 cents to US$89.72 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell 71 cents to settle at US$90.13 on Thursday.

Meanwhile, the American Petroleum Institute, a trade group for oil and gas producers, said high prices cut demand for gasoline and oil in the fourth quarter. On Wednesday, the International Energy Agency cut growth predictions for world oil demand this year to 2.3 percent from a previous estimate of 2.5 percent.

Shum said that regardless of the health of the U.S. economy, the oil market would soon be heading into a period of softer demand.

No matter how the U.S. economy turns out in the next few months, the global oil market will see softer demand when we go into February because peak winter demand would have passed and demand is typically weaker in the spring, Shum said.

Heating oil prices lost 0.55 cent to US$2.498 a gallon (3.8 liters) while gasoline prices dropped 0.28 cent to US$2.264 a gallon.

Natural gas futures added 3 cents to US$8.111 per 1,000 cubic feet.

In London, March Brent crude lost 10 cents to US$88.65 a barrel on the ICE Futures exchange. E-mail to a friend

Copyright 2008 The Associated Press. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

Oil drops below $90 a barrel – found here.

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January 18, 2008 - Posted by | Uncategorized

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