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THE WALL STREET JOURNAL: Oil Slides on Economic Jitters

Associated Press
January 21, 2008 6:43 a.m.

Oil prices fell sharply Monday as fears over the U.S. economy drove down stock markets in Asia and Europe. Further pressure came from concerns OPEC won’t raise crude production levels.

Light, sweet crude for February delivery fell $1.48 to $89.09 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract rose 44 cents to settle at $90.57 a barrel on Friday. In London, Brent crude futures fell $ 1.29 to $87.94 a barrel on the ICE Futures exchange.

Oil prices have now retreated more than $10 from a record above $100 a barrel early this year on worries a flagging U.S. economy would damp fuel demand. Prices had gained Friday on hopes that President Bush’s economic stimulus plan would work. But most stock markets have since reacted pessimistically, uncertain that Mr. Bush’s plan is enough to stave off a severe economic downturn in the world’s largest oil consumer.

Asian markets plunged Monday, with benchmark indexes in Hong Kong and Shanghai both dropping more than 5%. (See related article.)

In midday European trading, London’s FTSE 100 Index was down 2.9%, the CAC-40 in Paris was 3.9% lower and Frankfurt’s DAX was 3.8% below Friday’s close.

On Friday in the U.S., the Dow Jones industrials fell 0.5% after Mr. Bush announced a $145 billion tax-relief package.

“The run out of equities continues very strongly and the high correlation seen recently between equities and oil prices means that the risk remains high for oil prices to take the directional clue from the Dow,” said Olivier Jakob of Petromatrix in Switzerland. Mr. Jakob, however, concluded that growing demand for oil in Asia and the Middle East could help compensate for lower U.S. demand and keep oil prices from plunging.

“Prices are eroding but not yet collapsing due to the belief that pent up demand in emerging countries will create a stronger than expected floor,” Mr. Jakob said in his daily market report.

U.S. markets are closed Monday for Martin Luther King Jr. Day.

The Organization of Petroleum Exporting Countries should increase its oil output to meet growing demand, U.S. Energy Secretary Samuel Bodman told Saudi Arabia’s oil minister Saturday. The Saudi Arabian oil minister, Ali Naimi, said earlier last week his country would raise production levels only when the market justifies it. The current inventory seemed normal, he said.

Mr. Bodman’s visit to Saudi Arabia, which has the world’s largest supply of oil, comes just before a Feb. 1 OPEC meeting in which the oil cartel could consider increasing oil production.

“At this point, the market really does not expect an increase in output although there could still be a surprise,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. OPEC isn’t likely to raise output “because the upcoming spring season is a period of weak demand,” he said.

Mr. Bodman’s comments were made less than a week after Bush raised the same concerns in Saudi Arabia. Mr. Bush said oil prices were very high and “tough on our economy.” OPEC oil accounts for about 40% of the world’s needs and OPEC ministers often follow the lead of the Saudis when discussing whether to increase production.

Heating oil futures fell 3.07 cents to $2.4767 a gallon, while gasoline prices dropped 3.34 cents to $2.2700 a gallon. Natural-gas futures fell 8.5 cents to $7.908 per 1,000 cubic feet.

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