Oil falls to 7-week low as slow demand weighs

Thu Jul 24, 2008 5:07am EDT

LONDON (Reuters) - Oil dipped to seven week lows on Thursday due to increasing signs that high prices and economic weakness were slowing demand in the world's top consumer United States.

Oil has now fallen more than $23 a barrel from its record high peak above $147 on July 11, marking the biggest fall in dollar term since futures began trading in New York in 1983. In percentage terms, the 15 percent tumble is the steepest pull-back since early 2007.

U.S. light crude fell as low as $123.62 a barrel, the lowest since early June. It was trading at $124.40 by 0901 GMT (5:01 a.m. EDT), down 4 cents from Wednesday's close.

London Brent crude was 8 cents firmer at $125.37.

U.S. crude tumbled by about $4 on Wednesday as U.S. government data showed a larger-than-expected increase in gasoline stocks last week, together with weak implied demand. U.S. crude stocks dropped after a sharp decline in imports.

Wednesday's drop came despite some supply disruptions and a threat from a militant group to sabotage oil facilities in exporter Nigeria.

Analysts said the market was now reacting to existing fundamentals.

"Warnings like this normally would spook the markets into pushing higher," said MF Global in its research note.

"We can only suggest that the market, finally weighed down by the specter of decreasing energy demand, may not be as responsive to geopolitical headlines as it once was."

The main militant group in Nigeria's oil-producing Niger Delta said on Wednesday it would attack major oil pipelines in the next 30 days to prove it had not received payment from the government to end its campaign.

Hurricane Dolly caused output cuts at some refineries, but spared most offshore oil and natural gas facilities in the Gulf of Mexico.

The market's rout also appeared to spur some traders to unwind short-dollar/long-oil positions built up earlier this year, helping lift the U.S. currency to a one-month high against the yen and in turn driving down other commodity prices.

Open interest in crude oil futures tumbled to its lowest level since January 2, 2007, indicating that the sharp slide in oil prices was more the result of investors liquidating long positions rather than taking up fresh shorts.

(Reporting by Annika Breidthardt in Singapore and Ikuko Kao in London, editing by Anthony Barker)