Oil Falls Below $89 as Stock Markets Plunge
Oil slid to a six-week low below $89 a barrel on Monday as stock markets fell and concern mounted over an economic slow-down led by top consumer the United States.
Stock markets across the world took a battering as anxiety spread that a fiscal stimulus plan proposed by U.S. President George W. Bush last week would not be enough to prevent a recession.
U.S. light, sweet crude was lower, but off a session low of $88.67, which was the lowest level since Dec. 11.
Oil has dropped by more than 10 percent from a record high of $100.09 hit on Jan. 3.
Floor trading on the New York Mercantile Exchange (NYMEX) is shut on Monday for the Martin Luther King Jr. holiday.
London Brent crude was also down.
"The economic slowdown is dominating sentiment today," Tony Machacek at Bache Commodities said.
Milder-than-normal weather and costly fuel are denting demand for refined products such as heating oil and gasoline, analysts said.
Slower consumption has led some refiners in the United States, Europe and Northeast Asia to cut back production.
"With U.S. gasoline stocks standing at fairly comfortable levels, demand growth in the U.S. is likely to soften," Barclays Capital said in a research note.
Other commodities, such as precious metals, also dropped as fears deepened that a possible recession in the United States would have knock-on effects for other economies.
"The demand concern, i.e. U.S. recession, will keep the market volatile in the near term," said Badung Tariono, a fund manager at ABN AMRO Energy Fund in Amsterdam.
Speculators, such as hedge funds, on NYMEX are becoming nervous, according to the latest data from U.S. regulator the Commodity Futures Trading Commission, released on Friday.
It revealed they had reduced net long positions – or positions that anticipate a rise in prices.
Although oil prices are falling, the United States is still very anxious about their impact on its fragile economy.
U.S. Energy Secretary Sam Bodman on Monday during talks in Abu Dhabi repeated a plea for more oil from top exporter Saudi Arabia to try to bring down prices further.
The Organization of the Petroleum Exporting Countries (OPEC) has yet to respond and has said high prices are not caused by a lack of oil.