Oil Slides on Renewed Recession Worries

Oil futures fell below $90 a barrel Monday, extending their recent streak of back and forth trading as recession fears reasserted themselves. Concerns about a severe economic slowdown were reignited by a dismal report on new home sales in the United States as well as by overnight declines in global stock markets. Sales of new homes plummeted a record 26.4 percent last year while the median price of a new home edged up just 0.2 percent, the worst showing since 1991, the Commerce Department said.

Stocks fluctuated in Monday trading on investor nervousness. Energy investors often view equity markets as a proxy for economic growth, fearing that a slowdown would curtail demand for oil and petroleum products such as gasoline and heating oil. "The movements in the equity markets reflect the sentiment on the U.S. economy and how other economies in the world may be affected ... if it slides into a deep recession," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Indeed, domestic demand for gasoline fell last week by 152,000 barrels, according to the Energy Department, and some analysts think demand will fall more sharply in the coming weeks.
"I still think we have some ugly demand numbers coming out," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J. Light, sweet crude for March delivery fell $1.50 to $89.21 a barrel on the New York Mercantile Exchange, reversing two days of gains that had pushed prices back above $90.

At the pump, meanwhile, gas prices fell 0.5 cent Monday to a national average of $2.981 a gallon, according to AAA and the Oil Price Information Service. Retail gas prices, which typically lag the futures market, have mostly fallen since oil began its retreat from the record $100 level earlier this month. Tepid demand is also pressuring gas prices, though many analysts and the Energy Department expect prices to reverse and rise to new records near $3.50 a gallon when demand rebounds in the spring.

Energy traders are awaiting Wednesday's Federal Reserve meeting and a Friday OPEC meeting. If the Fed cuts rates sharply, energy investors could send prices higher, as they did last week on optimism sparked by a surprise Fed rate cut and a Congressional plan to stimulate the economy. On the other hand, analysts warn that investors could view another big rate cut as a sign the economy is in worse shape than thought, and send prices lower.

The Organization of Petroleum Exporting Countries is expected to hold production levels steady at its Vienna meeting, though any surprise could send prices sharply higher or lower.
Other energy futures also fell Monday. Heating oil futures for February delivery fell 4.29 cents to $2.4762 a gallon on the Nymex while February gasoline futures dropped 3.12 cents to $2.287 a gallon. February natural gas futures slipped 1.7 cents to $7.966 per 1,000 cubic feet.
In London, Brent crude fell $1.15 to $89.75 a barrel on the ICE Futures exchange.
By John Wilen
Source: Associated Press