OIL futures fell yesterday, slipping below US$90 at times and reversing five days of gains on renewed recession worries sparked by dismal government reports on consumer spending and employment.
A sharp downturn in the stock market on concerns about the economy and that municipal and corporate bond insurers may face debt downgrades also weighed on energy prices.
Consumer spending rose in December by 0.2 percent, the weakest performance since June, the Commerce Department reported. And claims for unemployment benefits jumped by 69,000 last week, the Labor Department said, more than three times what economists expected.
"It's the economic reports that are causing a lot of pressure (on prices) right now," said James Cordier, president of Liberty Trading Group in Tampa, Florida.
Light, sweet crude for March delivery fell US$2.45 to US$89.88 on the New York Mercantile Exchange.
Through Wednesday, oil prices had risen US$5.34 a barrel, or 6.1 percent, over five trading days on optimism that the Federal Reserve's rate cuts and an economic stimulus package working its way through Congress will stave off a serious downturn. But many investors doubt the plans will work.
"The reason for these drastic cuts is a much slower economy," Cordier said.
Stocks, meanwhile, slid yesterday on the economic news and after bond insurer MBIA Inc reported a large loss, raising the prospect of a round of downgrades in the bond insurance industry. Energy investors often view stocks as a proxy for economic growth, worrying that if the economy slows, demand for oil and gasoline will shrink.
"These days, there's a pretty strong tie-in between movements of the oil market and the equities markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Energy investors also continued to digest Wednesday's Energy Department report showing that crude oil and gasoline inventories jumped more than expected last week, analysts said. Gasoline inventories are at their highest levels in nearly two years, analysts said.
Demand for gasoline fell last week, and many observers expect further demand deterioration as the economy slows. That could threaten Energy Department predictions that gas prices will set new records near US$3.50 a gallon this spring.
"I just don't see that," Cordier said.
At the pump, gas prices inched 0.3 cent higher to a national average of US$2.986 a gallon yesterday, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, have risen slightly over the past two days after falling below US$3 a gallon last week. But if oil continues falling, gas prices will retreat further from the US$3 level, analysts said.
Oil traders are also awaiting today's OPEC meeting at which Organization of Petroleum Exporting Countries ministers are expected to hold production steady.
Other energy futures also fell yesterday. February gasoline futures dropped 6.9 cents to US$2.265 a gallon, while February heating oil fell 6.43 cents to US$2.485 a gallon. Both contracts expire at the close of trading.
March natural gas futures fell 2.4 cents to US$8.021 per 1,000 cubic feet. The Energy Department said natural gas inventories fell last week by 274 billion cubic feet, on the higher end of analyst estimates.
In London, Brent crude futures lost US$2 to US$90.53 a barrel on the ICE Futures exchange.