Oil falls below $65 on US contraction

[October 31, 2008]  BANGKOK, Thailand (AP) -- Oil prices slipped below $65 a barrel in Asia Friday, extending declines after data showed the U.S. economy contracted in the latest quarter, reinforcing expectations of a prolonged slump in demand.

Light, sweet crude for December delivery was down $1.78 to $64.18 a barrel in electronic trading on the New York Mercantile Exchange by midmorning in Singapore. The contract overnight fell $1.54 to settle at $65.96. Oil prices have fallen about 55 percent since peaking above $147 a barrel in mid-July.

U.S. gross domestic product, the broadest barometer of a nation's economic health, shrank at a 0.3 percent annual rate in the July-September quarter, the Commerce Department said overnight. It marked the worst showing for the world's largest economy since it contracted at a 1.4 percent pace in the third quarter of 2001.

The negative cue provided by the U.S. data continued into Asian trade, compounding the pressure from a generally strong dollar, said David Moore, commodity strategist with Commonwealth Bank of Australia in Sydney.

Investors often buy commodities such as crude oil as an inflation hedge when the dollar weakens and sell those investments when the greenback rises. Oil investors have also been tracking equity indexes as a barometer of global economic health.

The euro eased to $1.2697 from $1.3181 in late Asian trade Thursday and the dollar fell to 96.88 yen from 98.68. The region's stock markets were mixed after a rally the previous day with Japan's Nikkei index falling 5 percent while South Korea's market rose 2.6 percent and India's market jumped 6 percent.

"The dollar has been relatively firm and that has taken some of the edge off the market. There's also the other issues that have been in the market for a while such as worries about demand and consumption patterns," Moore said.

"A further fall in the oil price cannot be ruled out. It is difficult to predict where the bottom could be," he added. "An important factor over the next few months will be whether OPEC can achieve its output cuts. If it can that will certainly tighten market conditions."

Last week, the Organization of Petroleum Exporting Countries announced plans to cut 1.5 million barrels of production per day at an extraordinary meeting in Vienna called to address plummeting prices.

Venezuela's Oil Minister Rafael Ramirez says that OPEC, which controls about 40 percent of world crude oil production, will need to cut production at least another 1 million barrels per day to boost falling prices.

In other Nymex trading, gasoline futures fell 2.7 cents to $1.4395 a gallon. Heating oil fell 3.91 cents to $1.9450 a gallon and natural gas for December delivery was down 4.6 cents at $6.385 per 1,000 cubic feet.

In London, December Brent crude fell $1.89 to $61.82 a barrel on the ICE Futures exchange.

[Associated Press; By STEPHEN WRIGHT]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.