Oil falls to near $78 on prospect of weak demand

[October 03, 2011]  MANCHESTER, England (AP) -- Oil prices extended losses on Monday, falling to near $78 a barrel, as Europe's debt crisis roiled markets and falling personal incomes in the U.S. suggested slack demand for fuel.

By early afternoon in Europe, benchmark oil for November delivery was down 91 cents to $78.29 a barrel in electronic trading on the New York Mercantile Exchange. On Friday, benchmark crude dropped $2.94, or 3.6 percent, to settle at $79.20 per barrel in New York. Prices haven't finished that low since Sept. 29, 2010.

In London, Brent crude was down 50 cents to $102.26 per barrel on the ICE Futures exchange.

Oil prices have swung up and down in the last few weeks as the European financial crisis spooked markets.

Greece is waiting for a group of international lenders to approve an installment of a multibillion euro (dollar) loan to keep the country from defaulting on its debts. It has announced that it will fail to meet its 2011 and 2012 deficit targets despite new austerity measures.

Without the bailout installment, Greece will start to run out of money in two weeks. A default on its debts could trigger economic crises in other European countries and upend banks that are heavily invested.

Asian and European stock markets slumped, with London's FTSE 100 index down 2 percent on Monday and Tokyo's Nikkei 225 closing 1.8 percent lower.

"Once again, oil prices have nose-dived as economic gloom takes over from supply tightness in driving the market," said a report from KBC Energy Economics in London.

A stronger dollar also weighed on oil prices. Commodities such as crude are generally traded in dollars, so when the dollar rises it makes oil more expensive for buyers with other currencies, reducing demand. The euro fell to $1.3364 from $1.3424 late Friday in New York.

In the U.S., data pointed to further economic troubles heading into a traditionally weak time for petroleum demand. The Commerce Department said that Americans are earning less money, which could affect consumer spending and demand for oil.

Analyst Stephen Schork, editor of the Schork Report, said U.S. data showing a decline in personal incomes suggests that oil prices could continue to fall. Americans earning less money are likely to curb spending on consumer items and fuel.

October is usually a slow month in the oil business. The North American summer driving season is over, and it will be a couple of months before heating demand perks up and travelers set out for winter holidays.

In other Nymex trading in November contracts, heating oil fell was down 0.92 cent to $2.7701 per gallon and gasoline futures dropped 0.74 cent to $2.5307 per gallon. Natural gas gained 2.8 cents to $3.694 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

Pamela Sampson in Bangkok contributed to this report.

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