Oil Finishes Lower on Fresh US Mortgage Worries

Oil dropped Monday as the growing US subprime mortgage crisis heightened concern over the economic health of the world's top energy consumer.

Oil Refinery
Oil Refinery

Stock markets fell as Citigroup, the largest US bank, said it was unable to assure investors a potential $11 billion write-down for subprime mortgages will not increase.

US crude closed on the Nymex at $93.98 a barrel, down $1.95, after falling as low as $93.72. London Brent crude gave up $1.44 to $90.64.

Oil has climbed about 40 percent since the summer and reached a record high above $96 a barrel last week, boosted by the weak dollar, concerns over tight supplies ahead of winter and speculative inflows into oil and other commodities.

But the U.S. sub-prime mortgage crisis has hurt oil demand in the giant market and stoked worries of a wider economic crunch.

"The myriad of banks confessing to write-downs, no doubt, is contributing to an air of anxiety in the financial markets, while increasing the odds of a possible U.S.-led recession being triggered," said Edward Meir of MF Global.

U.S. Energy Secretary Sam Bodman said current prices are a "terrible problem" for consumers, adding he hoped oil producer group OPEC would ramp up output to ease prices.

But Venezuelan Oil Minister Rafael Ramirez on Monday echoed comments from other OPEC officials, saying high prices were due to speculation and geopolitical tensions and not a shortfall in supplies.

Markets have been eyeing tensions in the Middle East including a recent flare-up between Turkey and Kurdish rebels in northern Iraq. Analysts said a slight softening in tone was helping to pressure prices.

Iraq said on Saturday it was ready to arrest Kurdish guerrilla leaders responsible for cross-border raids into Turkey to avert a major incursion by the Turkish military.

Iran, the world's fourth-biggest oil exporter, said Sunday it welcomed proposals to work with other countries on uranium enrichment, but will not accept an offer that requires it to halt sensitive atomic work.

Speculators on the New York Mercantile Exchange crude oil market increased their net long positions in the week to Oct. 30, the U.S. Commodity Futures Trading Commission said.

A Reuters poll of analysts taken ahead of the Wednesday release of U.S. government inventory data predicted a 1.6 million barrel draw in crude stocks, a 700,000 barrel fall in distillates and a 100,000 barrel drop in gasoline stocks.