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Oil falls on fresh signs of global slowdown
NEW YORK—Oil plunged nearly four per cent yesterday as a bleak report on US job growth heightened worries about a slowing global economy and waning oil demand. Sobering economic news from China and Europe also contributed to the drop. West Texas Intermediate, the benchmark for oil in the US, fell US$3.30, or 3.7 per cent, to US$83.23 per barrel, the lowest price since early October. The drop adds to a 17 per cent decline in May.
Brent crude, which is used to price international oil, lost US$3.44, or 3.4 per cent, to US$98.43 per barrel, its lowest price since January 2011. The reports on jobs and manufacturing are the latest signals that the US economy is growing more slowly. At the same time, Europe is embedded in a financial crisis and China’s government is working to prevent economic growth there from slowing too quickly. That’s led to rising concerns that oil demand may weaken in the months ahead.
US employers added 69,000 jobs in May, the government said, which is the smallest number in a year and far short of the 158,000 new jobs expected by economists. The unemployment rate rose to 8.2 per cent from 8.1 per cent in April. Michael Lynch, president of Strategic Energy & Economic Research, said that the US jobs report will do little to improve shaky consumer confidence. “This suggests that we’re going to have a very poor summer for gasoline demand,” he said.
Cheaper oil means cheaper gasoline. The national average is now US$3.61 per gallon (95 cents a liter), 33 cents below their April peak of US$3.94, according to AAA, Wright Express and the Oil Price Information Service. That would mean a few more bucks in the pockets of US consumers, including those who purchased an estimated 1.4 million cars and trucks in May. Auto sales remain a bright spot in the US economy. Still, those sales won’t significantly boost gas demand because the new models are more fuel efficient than older models heading to the scrap heap.
Energy futures fell across the board, as did global stock markets. Heating oil fell 7.53 cents to US$2.628 per gallon, gasoline futures fell 6.59 cents to US$2.657 per gallon and natural gas dropped 9.6 cents to US$2.326 per 1,000 cubic feet. The S&P 500 stock index and the Dow Jones industrial average fell more than two per cent in afternoon trading. Markets in Europe fell two per cent or more. Markets in Asia showed smaller declines.
Besides the jobs report in the US, the Institute for Supply Management, a trade group of purchasing managers, says its index of manufacturing activity fell to 53.5 in May from 54.8 in April. A reading above 50 indicates expansion. Two surveys showed that manufacturing slowed in May in China, which is a huge importer of oil and other commodities.
Meanwhile, unemployment across the 17 countries that use the euro was stuck at 11 per cent in April. That’s the highest level since the single currency was introduced back in 1999.
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