Oil prices drop below US$88 a barrel, extending decline on US employment report
Associated Press | Dec 10, 07 12:00 AM CST
Oil dropped below US$88 a barrel in Asian trade Monday, extending a decline that began Friday after a November U.S. jobs report turned out to be less robust than expected.
Crude oil futures have retreated more than 10 percent from their all-time high near US$100 in November, in part on the belief that slower growth in the world's largest economy will cut into demand growth for oil. Also, oil and petroleum product supplies are no longer seen as insufficient for the Northern Hemisphere's winter.
The report Friday showed U.S. employers added 94,000 jobs to their payrolls in November following October's 170,000 gain. The data quashed the hopes of some oil investors that the Federal Reserve will cut interest rates by a half percentage point instead of the more widely expected quarter-point when it meets Tuesday, some analysts said.
The larger interest rate cut would add to the dollar's weakness against other currencies and provide stronger support to oil prices. Oil offers a hedge against a weak dollar and is more attractive to foreign investors when the greenback is falling.
Light, sweet crude for January delivery fell 69 cents to US$87.59 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract fell $1.95 to settle Friday at $88.28 a barrel.
Some analysts think volatility is becoming a central feature of the oil market.
Last week, oil futures ran up US$2.74 on Thursday before falling back to end the week. Analysts pegged Thursday's rise to tough talk from the White House on Iran, the U.S. plan to freeze loan rates for homeowners affected by the subprime mortgage crisis, or an Organization for Economic Cooperation and Development estimate that China's economy is growing faster than initially expected.
Other analysts said it was difficult to find reasons to explain the market's recent pricing swings.
"We're just going to see these big daily swings, and at the end of the day people are just going to be scratching their heads," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.
In Asia Monday, other Nymex energy futures fell as well. Heating oil shed 1.95 cents to US$2.4852 a gallon (3.8 liters) while gasoline prices dropped 1.1 cents to US$2.2580 a gallon. Natural gas futures fell 11.6 cents to US$7.039 per 1,000 cubic feet.
January Brent crude fell 55 cents to US$88.09 a barrel on the ICE Futures exchange in London.
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