Oil falls $2 to 5-month low on economic gloom
LONDON (Reuters) - Oil prices fell to a fresh five-month low on Friday on flagging demand in the United States and other consumer nations, extending crude's losses to 8 percent this week.
The market shrugged off continued production problems in the United States in the wake of Hurricane Gustav, which left some 23 percent of the nation's crude production and 6 percent of its refining idled and in slow recovery.
"The economy in the United States and Europe is turning bad and people realize that the growth in the economies of China, India and Brazil will not be enough to offset what looks like a world economic contraction," said Kyle Cooper, director of research at IAF Advisors in Houston.
U.S. crude traded down $1.66 to settle at $106.23 a barrel, the lowest level since April 4. London Brent crude fell $2.21 to $104.09.
U.S. oil demand over the past four weeks has been running about 3.5 percent below a year ago and gasoline consumption appears on track for its first annual decline since the early 1980s, according to data from the U.S. Energy Information Administration.
Further fueling worries about the economy, U.S. data on Friday showed the unemployment rate rising to 6.1 percent, the highest level in nearly five years, as the country suffers from a banking crisis.
Oil prices have been on a steep downtrend since hitting a record over $147 a barrel in mid-July, raising the possibility that OPEC will cut production when it meets next week in Vienna to stem the slide.
Iran's OPEC governor said an oil price of $100 per barrel was "appropriate" in current conditions, the Oil Ministry's news agency Shana reported on Friday.
Dealers said mounting evidence of slowing global energy demand outweighed continued production problems in the Gulf of Mexico and along the U.S. Gulf Coast after Hurricane Gustav, which is expected to trigger deep declines in commercial inventories in the coming weeks.
Shutdowns caused by the storm have already cut a cumulative total 8.6 million barrels of crude oil production, the equivalent of over a third of U.S. daily consumption. But onshore demand for crude has also dipped due to refinery outages, mitigating the impact of the offshore outages.
Energy companies have been bringing production back on line and have reported no major damage from the storm, but experts expect a full recovery could be slow as another storm, Hurricane Ike, threatens to hit the region next week.
Surging oil demand in emerging economies like China had supported a six-year record rally, with additional strength coming from a rush of cash from investors seeking to hedge against inflation and the weak dollar.
But China, the world's second largest oil consumer, is expected to slash fuel imports to nearly nothing this month after record-high purchases that filled domestic stocks just ahead of the Olympics.
Gains in the greenback over the past two months have also helped push oil down, with the dollar briefly hitting an 11-month high against the euro early Friday.
(Additional reporting by Gene Ramos in New York and Felicity Loo in Singapore; Editing by Christian Wiessner)
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