November 20, 2008 / 1:39 AM / in 9 years

Oil drops 7 percent to 3-1/2-year low below $50

NEW YORK (Reuters) - Oil prices dropped more than 7 percent to below $50 a barrel on Thursday as a bearish U.S. jobs report intensified concerns of a long and deep global recession and further crushed fuel demand expectations.

The U.S. government reported the number of workers making new claims for jobless benefits surged last week to the highest level in 16 years, helping to push down global equity markets.

U.S. crude fell $4.00 to settle at $49.62 a barrel, the lowest settlement since May 23, 2005. London Brent crude shed $3.64 to settle at $48.08 a barrel, its lowest close since May 20, 2005.

“With the global equity indices being led lower by U.S. indices, such as the S&P 500 and Dow Jones Industrials, which are both testing the lows dating back to 2001-2002, commodities across the board are on the defensive, with crude oil being the poster child for a major global recession,” Chris Jarvis, senior analyst for Caprock Risk Management, said.

“Further weakness can be expected for crude oil, if global markets continue to march on their deep spiral south.”

Oil has tumbled nearly $100 from record highs above $147 a barrel in July, as the economic crisis strangles demand growth in large consuming nations such as the United States.

Citigroup Inc’s shares tumbled 25 percent as investors questioned the bank’s ability to withstand what are expected to be billions in additional loan losses in 2009.

As demand slumps, oil companies plan to store millions of barrels of crude in the hope economics will improve.

Shipping brokers on Thursday said U.S. oil trader Koch and Royal Dutch Shell had booked supertankers capable of storing 10 million barrels of crude, more than top exporter Saudi Arabia produces in a day.

OPEC CUTS

Libya’s top oil official said on Thursday the Organization of Petroleum Exporting Countries may decide to reduce supply further at a meeting in Cairo next week, if it finds members have implemented a previous decision to lower output.

The comments followed remarks from other OPEC members, including Kuwait, Iran and Venezuela, raising the possibility of a further cut in supply to prop up oil prices.

Since early September, OPEC has said it would remove around 2 million barrels per day from international markets, but the market has taken the view that falling demand is a bigger factor than tightening supply.

Additional reporting by Matthew Robinson, Robert Gibbons and Gene Ramos in New York; Chris Baldwin in London; Editing by Walter Bagley

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