Oil prices fall below US$90 amid concerns about US economy

Updated: 2008-02-05 12:27

SINGAPORE - Oil prices retreated Tuesday, weighed down by persistent concerns about the flagging US economy as stock markets declined.

"The market is in uncertain territory as worries about the economy in the US continue to weigh - it's unclear how deep the recession will be, if there is a recession," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

"Meanwhile, the market tends to move in tandem with global equities markets."

The Dow Jones industrial average fell more than 100 points Monday on Wall Street as investors cashed in profits from the market's best week in nearly five years, and Tuesday in Asia major stock indices in Tokyo and Hong Kong are down more than 1 percent.

Energy investors often view stocks as a proxy for economic growth, and in some recent sessions, movements in the oil market have closely followed that of global equities.

Light, sweet crude for March delivery lost 26 cents to US$89.76 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore.

The contract rose US$1.06 to settle at US$90.02 a barrel on Monday after the US government reported strong data on factory orders, raising hope that the world's largest economy will dodge a recession that would curtail demand for energy.

A temporary closure of the Houston Shipping Channel and a ship channel near Port Arthur, Texas, both key waterways used to transport crude oil to Texas refineries, also pushed prices higher Monday.

Also supporting prices Monday were new reports of violence in northern Iraq and Nigeria. Turkish warplanes bombed 70 Kurdish rebel sites in northern Iraq, while a Nigerian rebel group attacked security forces near a Royal Dutch Shell PLC oil-pumping station, killing three soldiers. Violence in both regions contributed to oil's rise to US$100 a barrel earlier this year.

Oil prices should drop further in the coming weeks as demand diminishes with the end of the Northern Hemisphere winter, Shum said.

"We're entering the shoulder season between the Northern Hemisphere winter, which is ending, and before the US summer driving season ... pricing should soften," he said.

Heating oil fell 0.5 cent to US$2.4783 a gallon (3.8 liters) while gasoline prices dropped 0.67 cent to US$2.305 a gallon. Natural gas futures added 8.6 cents to US$7.955 per 1,000 cubic feet.

Brent crude declined 10 cents to US$90.37 a barrel on the ICE Futures exchange in London.

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