BUSINESS

Oil plunges 4 pct. on demand worries in fresh evidence of slower growth in Asia, Europe

10/03/2012 07:56 EDT | Updated 12/03/2012 05:12 EST
Oil fell the most in five months on Wednesday as China's slowing economy raised questions about the strength of global oil demand.

Benchmark oil fell $3.75, or 4.1 per cent, to $88.14 per barrel in New York. That was the biggest decline since May 4 when oil fell $4.05 per barrel.

Data released Wednesday showed China's services sector expanded at a cooler pace in September. That came just days after a survey indicated that the country's manufacturing continues to slow.

Those reports, plus an ongoing financial crisis in Europe, have called into question the strength of global demand for oil.

China is the world's second-largest economy and a huge importer of commodities like oil. China's crude oil imports fell to 4.3 million barrels per day in August, the weakest level since October 2010, analysts at Bank of America Merrill Lynch estimated in a report last week.

Brent crude, which is used to price international varieties of oil, fell $3.40, or 3 per cent, to $108.17 in London.

After years of rapid growth, Asia's developing economies now face much more modest prospects, the Asian Development Bank said Wednesday in a report that slashes growth forecasts for this year and next.

The ADB said growth in developing Asia, which includes economies such as India, China and Indonesia, will slow to 6.1 per cent this year from 7.2 per cent last year and only partly rebound to 6.7 per cent in 2013. It had previously forecast growth of 6.9 per cent for 2012 and 7.3 per cent for 2013.

The disappointing reports overshadowed signs of improvement in U.S. service companies, which employ nearly 90 per cent of the work force. The Institute for Supply Management says its index rose in September at the fastest pace since March.

Meanwhile, the U.S. government says crude inventories fell slightly last week but remain 8.4 per cent above year-ago levels. Gasoline supplies rose.

There will be further big price swings in oil this month as the market reacts to each piece of major economic news, says Jim Ritterbusch, of Ritterbusch & Associates. In a daily newsletter, he said oil could jump over the next two days on any positive surprises from the European Central Bank's policy meeting Thursday or the latest U.S. unemployment report on Friday

In other energy futures trading in New York:

— Natural gas fell 13.6 cents, or 3.8 per cent, to $3.395 per 1,000 cubic feet, a day after hitting a high for the year.

— Heating oil dropped 5.9 cents to $3.066 per gallon.

— Wholesale gasoline dropped 7 cents, or 2.5 per cent, to $2.80 per gallon.

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