AP
Oil Prices Fall on Economic Worries
Thursday January 10, 4:10 pm ET
By John Wilen, AP Business Writer
Oil Prices Fall on Economic Worries, but Pare Losses on Bernanke Comments, Nigeria Attacks


NEW YORK (AP) -- Oil futures fell Thursday on growing concerns that a U.S. economic slowdown is imminent and will depress demand.

Federal Reserve Chairman Ben Bernanke's comments that the central bank is ready to cut interest rates to help stave off a recession helped crude prices pare some of their losses, as did an attack on six oil industry ships by Nigerian rebels. But prices stayed in negative territory after a tepid unemployment claims report and weak holiday sales at many large retailers, data that compounded the market's growing fears of an economic downturn.

An Energy Information Administration report that demand for crude oil and petroleum products fell last week for the third week in a row contributed to the price declines.

"Without U.S. demand and without stronger economic growth, crude oil can't stay in the $90s," said James Cordier, president of Liberty Trading Group in Tampa, Fla.

Light, sweet crude for February delivery fell $1.96 to settle at $93.71 a barrel on the New York Mercantile Exchange, after dipping as low as $93.30 earlier.

Bernanke's comments raised chances the Fed will cut rates by a half percentage point when it meets at the end of January. Lower rates tend to weaken the dollar, giving investors reason to buy oil. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

Many analysts believe the weakening dollar helped draw speculative investors into oil markets this fall and winter, driving oil prices above $100 a barrel last week.

Separately, the Movement for the Emancipation of the Niger Delta, or MEND, a group whose attacks have crippled oil production in Africa's top exporter, said it fired on oil ships on the Bonny River. The rebels provided no further details, but threatened further attacks that will cause an "economic tsunami" in world oil markets.

At the pump, meanwhile, gas prices fell 0.4 cent Thursday to a national average of $3.10 a gallon, according to AAA and the Oil Price Information Service. Gas prices have bobbed around the $3 mark in recent weeks, following crude prices higher or lower. If crude prices continue falling, as many analysts now expect, gas prices will likely retreat below $3 a gallon before rebounding as usual in the spring.

Many analysts and the EIA expect gas prices to set new records ranging from $3.50 to $3.75 a gallon or higher by summer. But Cordier thinks those predictions are overblown.

"It's not going to $3.75 while we're having a recession," Cordier said.

Thursday's data added to growing concerns about the economy. While the number of people filing for unemployment benefits fell slightly and unexpectedly last week, the decline may have had more to do with technical factors than any fundamental improvement in the employment picture. Last week, oil prices sold off sharply after a report showed employers created far fewer jobs last month than expected.

Also Thursday, several big retail chains said holiday sales were weaker than expected, raising new worries about consumer spending.

Other energy futures mostly fell Thursday. February heating oil fell 5.61 cents to settle at $2.5573 a gallon on the Nymex, while February gasoline futures dropped 7.54 cents to settle at $2.3601 a gallon. February natural gas futures rose 16 cents to settle at $8.259 per 1,000 cubic feet after the government reported that inventories fell by 171 billion cubic feet last week, slightly more than expected.

In London, February Brent crude fell $2.15 to settle at $92.22 a barrel on the ICE Futures exchange.

Associated Press Writer George Jahn, in Vienna, contributed to this report.