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Oil prices near $60 on recession fears

SHARE Oil prices near $60 on recession fears

HOUSTON — Oil prices neared $60 a barrel Thursday, their lowest point in about a year and a half, as a growing number of economic reports point to a long and painful recession.

The number of Americans continuing to draw unemployment benefits surged to a 25-year high, the Labor Department said Thursday, and the nation's retailers saw their sales plummet last month to the weakest October level since at least 1969.

When the economy slows, the demand for energy fades. One side effect: the price of gasoline has tumbled from summer highs, when a gallon cost more than $4. Experts say gasoline could cost half that by year's end.

Light, sweet crude for December delivery fell 7 percent, or $4.53, to settle at $60.77 a barrel on the New York Mercantile Exchange. Prices tumbled as low as $60.16 at one point, a level last seen in March 2007.

Oil prices have now fallen nearly 60 percent since peaking at $147.27 a barrel in mid-July. They surged above $70 Tuesday, but a crude sell-off began the following day when prices dipped 7.4 percent.

Analyst and trader Stephen Schork said the sharp decline is fallout from a yearlong bubble.

Some investors and lawmakers in Washington have blamed speculative traders for bidding up the price of oil.

"It's the old adage: markets fall faster than they rise. And this is exactly what we're seeing right now," Schork said. "We knew it was a bubble on the way up. People stopped acting rationally. High prices became the justification for high prices. Fundamentals be damned."

Also pressuring crude prices Thursday were interest rate cuts across Europe, where economic leaders were trying to spark growth.

Oil analyst Peter Beutel of Cameron Hanover said crude was falling because of a stronger dollar, renewed fears of recession and weaker equities markets.

"Oil prices ... have been searching for a bottom for the last several days," a Cameron Hanover report said.

And despite a government report showing storage levels in the U.S. rose less than expected last week, prices for natural gas fell, too.

Meteorologist predictions of a cold winter have been pushing up natural gas prices recently.

In its weekly report, the Energy Department's Energy Information Administration said natural-gas inventories held in underground storage in the lower 48 states rose by 12 billion cubic feet to about 3.41 trillion cubic feet for the week ending Oct. 31.

Analysts had expected a boost of between 20 billion to 25 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

"The (EIA) report was kind of bullish actually and the market went the other way," said Phil Flynn, an analyst at Alaron Trading Corp. "It's just the overall malaise. Earnings today haven't been anything to write home about. We're readjusting commodities based on recessionary-like numbers."

Wall Street slumped again Thursday, sending stocks lower for a second day after Cisco Systems Inc. reported crumbling demand. The Dow Jones industrial average fell 450 points.

The dollar strengthened after the European Central Bank cut its key rate by half a percentage point to 3.25 percent Thursday, joining the Bank of England, Swiss and Czech central banks as they confront a looming recession.

The ECB announced the cut from 3.75 percent shortly after the Bank of England lowered its key interest rate by a startling 1.5 percentage points to 3 percent. The Bank of England's cut was more than the full percentage point that most analysts had predicted and the biggest cut in 27 years.

Commodities such as oil are used as a hedge against inflation and a weak dollar. When a central bank cuts interest rates, it tends to weaken that nation's currency, meaning the dollar typically trades higher against it.

When the dollar strengthens, it makes oil more expensive to buyers dealing in other currencies.

But the continuing parade of dim economic reports weighed on global markets and on the price of oil as well.

Retailers' October sales figures showed consumers pulling back spending sharply. A Labor Department report said the number of people continuing to draw unemployment benefits jumped by 122,000 to 3.84 million in late October. It was the highest level since late February 1983, when the country was struggling to recover from a long and painful recession.

Other economic indicators out of the U.S. this week suggest the world's largest economy may be heading for its worst recession in decades. A Commerce Department report Tuesday said factory orders fell 2.5 percent in September from August, much worse than analysts had predicted.

On Monday, U.S. manufacturers reported poor figures for October, showing the worst reading in more than a quarter century.

Gasoline fell again overnight, dipping 2.5 cents to a national average of $2.34 for a gallon of regular unleaded, according to auto club AAA, the Oil Price Information Service and Wright Express. The average price has fallen nearly 33 percent in the past month and, according to AAA, could be headed to $2 a gallon nationally by year's end.

In other Nymex trading, gasoline futures fell 8.8 cents to settle at $1.336 a gallon. Heating oil dropped 11 cents to settle at $1.942 a gallon while natural gas for December delivery fell 27 cents to setttle at $6.979 per 1,000 cubic feet.

In London, December Brent crude fell $4.44 to settle at $57.43 on the ICE Futures exchange.

Associated Press writer Pablo Gorondi in Budapest, Hungary, and Alex Kennedy in Singapore contributed to this report.