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Oil sinks to $82 as Fed warns of economic risks
Oil plunges to near $82 in Europe after Federal Reserve warns of 'significant' economic risks
By The Associated Press

Oil prices plunged almost $4, to near $82 a barrel Thursday, extending losses from the previous session after the U.S. central bank warned that already weak economic growth could deteriorate further.

By early afternoon in Europe, benchmark oil for November delivery was down $3.66 at $82.26 in electronic trading on the New York Mercantile Exchange. Crude dropped $1.00 to settle at $85.92 on Wednesday.

In London, Brent crude for November delivery was down $3.55 at $106.81 on the ICE Futures exchange.



Federal Reserve Chairman Ben Bernanke said Wednesday at the end of a two-day policy meeting that there were "significant downside risks" to the Fed's economic forecasts, and highlighted a weak labor market and high unemployment rate.

The Fed also sought to lower lending rates and spur economic growth with a $400 billion program to sell short-term Treasury bills and buy long-term debt ' dubbed "operation twist" ' but analysts said it falls short of the $600 billion bond-buying program that ended this year. Most short-term rates are already near zero percent, blunting the possible benefits of any decline in long-term interest rates.

"We expect it to have only a limited downward impact on longer-term interest rates and the impact on the wider economy will be even more modest," Capital Economics said in a report. "The cost of borrowing simply isn't the problem."

Diving global equities also weighed on oil prices since traders often look to stocks as a barometer of overall investor sentiment. Dow Jones industrial average fell 2.5 percent Wednesday, while Asian and European stock markets were down sharply Thursday, including a fall of 4.8 percent in London's FTSE 100 index and a drop of 4.4 percent in Berlin's DAX.

A stronger dollar against the euro also helped push down crude prices by making the commodity more expensive for investors in other currencies.

The euro was down to $1.3454 from $1.3667 late Wednesday in New York.

"The dollar's reaction to Operation Twist has been the opposite of what we would have predicted; the dollar looks stronger after it, which makes little sense," said analysts at U.S. energy consultancy Cameron Hanover. "It seems to be telling us that investors had already discounted a larger quantitative easing program. That would go a long way toward explaining the resilience of oil prices over the last few months."

In other Nymex trading for November contracts, heating oil fell 8.11 cents to $2.8641 per gallon and gasoline futures slid 8.22 cents to $2.5742 per gallon. Natural gas for October delivery lost 4.7 cents to $3.683 per 1,000 cubic feet.

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Alex Kennedy in Singapore contributed to this report.


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