Oil drops 13pc

Crude oil is poised for the biggest weekly drop since 2004 after falling for a third day in New York as indicators show that the U.S. is slipping into a recession, reducing fuel demand in the world's largest energy user.

Oil has seen a 13% decline this week as higher borrowing costs and reports showing a declining economy created doubts that the U.S. government's $700 billion bank-bailout plan will stimulate growth. The number of futures held by traders in New York slipped to the lowest in more than two years on signs of falling demand.

“It's difficult to see any bright side for oil or other commodities markets,'' said Tetsu Emori, a fund manager at Astmax Ltd. in Tokyo. "People don't want to leave their money in commodities because they need the cash to offset losses in other markets.''

Crude oil for November delivery fell as much as $1.16, or 1.2 percent, to $92.81 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $93.10 a barrel at 10:55 a.m. Singapore time.

Light, sweet crude for November delivery settled $US4.56, or 4.6 per cent, lower at $US93.97 a barrel on the New York Mercantile Exchange. Oil prices are trading close to an eight-month low, and have only ended lower than latest settlement once since mid-February, on September 16

The steep declines weren't limited to oil. Corn futures on the Chicago Board of Trade hit the exchange-imposed US30-cent limit, while ethanol futures dropped about 5 per cent. Precious metals, which had weathered the financial storm earlier in the week with only modest losses, saw declines of 5 per cent or more.

"A market can be viewed as a safe haven one day and everyone bails out of it the next day," said Rob Kurzatkowski, futures analyst with optionsXpress.

U.S. fuel use over the past four weeks averaged 19 million barrels a day, the weakest since October 2001, an Energy Department report showed earlier this week. Crude-oil and gasoline inventories increased last week, the department said.

The U.S. Senate passed a $700 billion financial-market rescue package loaded with inducements for the House of Representatives to approve the measure. The House rejected a version on Sept. 29. The legislative body will reconsider the Senate's bill today.

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

“Even if the financial bailout plan might be passed it won't be helpful because it won't stem the fall,'' Astmax's Emori said.

Brent crude oil for November settlement declined as much as 90 cents, or 1 percent, to $89.66 a barrel on London's ICE Futures Europe exchange. It was at $89.71 a barrel at 10:54 a.m. Singapore time. The contract declined $4.77, or 5 percent, to settle at $90.56 a barrel yesterday, the lowest since Sept. 16.

Author: Jo Amey