Crude Oil Drops for Fourth Day on Concern Demand Will Weaken

By Margot Habiby

Oct. 6 (Bloomberg) -- Crude oil fell for a fourth day as the credit crisis deepened in Europe, adding to concern that global economic growth will slow and reduce demand for fuels.

Oil dipped as low as $88.89 a barrel after European leaders pledged to bail out troubled banks and protect depositors. OPEC President Chakib Khelil said today the price slide will continue next year, and Saudi Aramco, the world's largest state oil company, cut its selling prices for exports to Asia and the U.S.

``The negative sentiment that's growing in Europe is definitely having an impact,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``The dollar going up helped oil start on a down note. People are looking at how far it will drop rather than looking at a technical rebound.''

Crude oil for November delivery fell $2.99, or 3.2 percent, to $90.89 a barrel as of 9:22 a.m. on the New York Mercantile Exchange. Earlier, it touched the lowest since Feb. 8. Futures have fallen 38 percent from the record $147.27 reached July 11.

New York oil prices declined 12 percent last week as reports showed U.S. fuel demand the previous four weeks was the lowest in almost seven years and manufacturing shrank in September at the fastest pace since the last recession in 2001. The Labor Department reported a bigger-than-expected 159,000 drop in payrolls in September last week.

The dollar rose to the highest since August 2007 against a basket of currencies, reducing the investment appeal of dollar- denominated commodities. The euro fell as low as $1.3543, from $1.3772 Oct. 3, after Germany said it will guarantee personal bank deposits, in a bid to stabilize the nation's banking system.

``With the stream of economic distress signals continuing unabated, the oil market is betting that demand will really suffer,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``A further push towards $85 is looking highly likely in these feverish conditions.''

`Vicious'

The U.S. may fall into a recession, the International Monetary Fund said on Oct. 2 in its most pessimistic outlook for the world's largest economy since the credit crisis began last year.

``It is doubtful that the vicious downward decline we are seeing in most markets will end anytime soon, even if credit markets start to thaw out,'' said Edward Meir, an analyst at MF Global Ltd. in Connecticut.

Saudi Aramco trimmed the price of its Arab Extra Light crude by 30 cents to a discount of $3.40 a barrel below the West Texas Intermediate benchmark, the Dhahran, Saudi Arabia-based producer said yesterday in a faxed statement. The company also cut the price of its Arab Light grade.

Brent crude oil for November settlement fell $3.01, or 3.3 percent, to $87.24 a barrel on London's ICE Futures Europe exchange. Earlier, it touched $85.50 a barrel.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.