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Oil down more than 6 pct after US credit downgrade
Oil falls to lowest level of year on worries about US credit downgrade, global demand
By The Associated Press

Oil plunged to its lowest price of the year Monday, another sign that the U.S. economy is in trouble and demand for oil and gas could fall.

The slide followed Friday's announcement that ratings agency Standard & Poor's no longer considered U.S. government debt one of safest investments in the world. Monday was the first chance traders and investors had to react, and many of them sold off.

They poured money into assets considered to be safer during times of economic uncertainty, such as Treasurys and gold, and pulled it out of stock and oil on Monday.



Even before S&P's downgrade, weak economic data has made investors nervous about the U.S. economy's strength and appetite for oil. The economy grew only 1.3 percent in the second quarter, while Europe continued to struggles with enormous debt. Some investors fear another recession.

Benchmark West Texas Intermediate fell $5.57, or 6.4 percent to settle at $81.31 per barrel on the New York Mercantile Exchange Monday. That is the lowest settlement price of the year for crude.

In the past two weeks, oil prices have dropped nearly $16 per barrel. Analysts think oil will remain volatile this week as traders look for some clarity on where the economy and demand are headed. On Tuesday, the U.S. government and OPEC wiil both issue an updated forecast for global oil consumption.

Traders are also closely watching debt problems in Europe, where the European Central Bank said it will intervene to prop up the sagging economies of Spain and Italy.

Some analysts believe that global oil demand, particularly in emerging markets like China, will continue to support prices. The share of global oil demand in emerging markets has risen from 44 percent in 2008 to 48 percent this year, Barclays Capital said in a report for clients. China's share of global oil demand has increased more than 2 percent in the same period.

Goldman Sachs analysts also believe oil prices will rise next year. They told clients in a note published Friday that the risk of a U.S. recession has risen, but their revised U.S. economic outlook remains consistent with a recovery at a slower pace, "which is typical following a housing bust."

In addition Goldman said the outlook for economic growth in China and other emerging markets is positive.

Oil is still higher than the $71.63 per barrel low of the past 12 months. Oil hit that on Aug. 24 of last year, when a combination of disappointing economic news and abundant supplies drove down prices.

Gasoline futures, meanwhile, have fallen between 35 cents and 40 cents in the last two weeks. That will translate into a savings at the pump of about $140 million to $160 million a day for motorists, according to Cameron Hanover energy consultancy.

The national average price for retail gas was $3.663 a gallon Monday, according to AAA, Wright Express and the Oil Price Information Service. That's down 4.2 cents in the past week but still 88.7 cents more than a year ago.

Lower oil prices should push pump prices down further. But drivers aren't likely to spend more money on fuel because of worries about where the economy may be headed, according to OPIS chief oil analyst Tom Kloza.

In other Nymex trading for September contracts, heating oil fell 14 cents to settle at $2.8017 per gallon, gasoline futures dropped 11.36 cents to settle at $2.6916 per gallon and natural gas rose 0.6 cent to settle at $3.935 per 1,000 cubic feet.


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