Oil Falls More Than $1 as Stocks Fall, Recession Concern Mounts

By Mark Shenk

Oct. 28 (Bloomberg) -- Crude oil fell more than $1 after U.S. stocks tumbled in the last half hour of trading, heightening concern that a recession will slash fuel consumption.

Energy prices also dropped as the dollar rose to the highest in more than 2 1/2 years against the euro, dimming the appeal of commodities as a hedge. OPEC may make an additional output cut if its Oct. 24 decision to lower production fails to bolster prices, said Mohammad Ali Khatibi, Iran's representative to the group, according to the country's state-run Mehr news agency.

``Everyone is watching stock-market tickers and not OPEC,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``We want to see the full effect of the recession on demand, and until that happens prices will trend lower.''

Crude oil for December delivery fell $1.34, or 2.1 percent, to $61.88 a barrel at 9:05 a.m. Sydney time on the New York Mercantile Exchange. Prices, which have tumbled 58 percent since reaching a record $147.27 on July 11, are down 33 percent from a year ago.

Yesterday, futures dropped 93 cents, or 1.4 percent, to close at $63.22 a barrel, the lowest settlement price since May 29, 2007.

The Standard & Poor's 500 Index slipped 27.85 points, or 3.2 percent, to 848.92. The Dow Jones Industrial Average slid 203.18, or 2.4 percent, to 8,175.77. The Nasdaq Composite Index retreated 46.13, or 3 percent, to 1,505.9. More than eight stocks fell for each that rose on the New York Stock Exchange.

`Downward Spiral'

``With all of the stock markets going down, there's going to continue to be downward pressure,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``There's not a lot that can be done to stop this downward spiral right now.''

Investors looking for protection against the dollar's decline earlier this year helped lead crude oil, gold, corn and gasoline to records. The euro fell as much as 2.3 percent yesterday to $1.2334, the weakest since April 2006, from $1.2623.

Oil is heading for a 39 percent drop this month, the steepest since at least 1988 in New York, as the Organization of Petroleum Exporting Countries cut oil production for the first time in almost two years. The 13 OPEC nations agreed to reduce supply by 1.5 million barrels a day starting in November.

The OPEC price basket, an average of 11 crude-oil grades sold by the group, dropped to $57.57 a barrel on Oct. 24, the lowest since March 21, 2007.

Further Cut

The decline in the basket price ``increases the likelihood that they will be forced to cut production again,'' said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut. ``They now have to worry about their economic health because a vast majority of their income comes from oil.''

Global oil demand may fall for the first time in 15 years in 2008 and stagnate next year, the Centre for Global Energy Studies said Oct. 20. OPEC, the International Energy Agency and the U.S. Energy Department all cut their forecasts for growth earlier this month.

The Energy Department will probably report tomorrow that U.S. supplies of crude oil, gasoline and distillate fuel, a category that includes heating oil and diesel, rose last week, a Bloomberg News survey showed.

Brent crude oil for December settlement declined 64 cents, or 1 percent, to settle at $61.41 a barrel on London's ICE Futures Europe exchange, the lowest since March 21, 2007.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.