Oil slips below $81 as European markets slide

[October 04, 2010]  KUALA LUMPUR, Malaysia (AP) -- Oil prices slipped below $81 a barrel Monday as weak European stock markets dampened sentiment.

Benchmark oil for November delivery was down 62 cents to $80.96 a barrel at late afternoon Kuala Lumpur time in electronic trading on the New York Mercantile Exchange. The contract gained $1.61 to settle at $81.58 on Friday, the first time it topped $80 a barrel since early August.

Oil held most of Friday's gains in Asian trading but weakened as European stock markets slid. Oil traders often look to stock markets as an indicator of investor optimism about the economy.

A decline in first-time claims for jobless benefits and an improvement in Chicago region manufacturing activity spurred oil's rally on Friday. The U.S. government has also raised its estimate of second quarter gross domestic product growth to 1.7 percent from 1.6 percent.

At the same time, a surprise drop in commercial crude inventories of 500,000 barrels last week also boosted investor optimism.

"We have expectations of demand growth returning to the market. The current momentum built into oil futures may support pricing at this $80 plus level for a while but it remains a question whether it can be sustained over the longer-term," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.

Crude prices have zigzagged in the $70s for most of the last year, with short-lived peaks above $80 undermined by an uneven economic recovery in developed countries. Some analysts expect strong crude demand in emerging economies, such as China, will help push prices higher.

In other Nymex trading in November contracts, heating oil was down 1 cent at $2.28 a gallon and gasoline fell 1 cent to $2.08 a gallon. Natural gas fell 4 cents to $3.76 per 1,000 cubic feet.

In London, Brent crude fell 69 cents to $83.06 a barrel on the ICE Futures exchange.

[Associated Press; By EILEEN NG]

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